CHAPTER 1
MANAGEMENT ACCOUNTANTS:
THEIR VITAL ROLE IN STRATEGIC AND OPERATING DECISIONS
1-1 Management accounting measures and reports financial as well as other types of
information that assist managers in fulfilling the goals of the organization. Financial
accounting focuses on external reporting that is guided by generally accepted accounting
principles.
1-2 Financial accounting is constrained by generally accepted accounting principles.
Management accounting is not restricted to these principles. The result is that:
• management accounting can include assets or liabilities (such as “brand names”
developed internally) not recognized under GAAP, and
• management accounting can use asset or liability measurement rules (such as present
values or resale prices) not permitted under GAAP.
1-3 Management accountants can help in formulating strategy by providing
information about the sources of competitive advantage—for example, the cost,
productivity, or efficiency advantage of their company relative to competitors or the
premium prices a company can charge relative to the costs of adding features that make
its products or services distinctive.
1-4 The business functions in the value chain are:
• Research and development—the generation of, and experimentation with, ideas related
to new products, services, or processes.
• Design of products, services, and processes—the detailed planning and engineering of
products, services, or processes.
• Production—the coordination and assembly of resources to produce a product or
deliver a service.
• Marketing—the process of promoting and selling products or services to customers or
prospective customers.
• Distribution—the mechanism by which products or services are delivered to the
customer.
• Customer service—the support activities provided to customers.
1 Copyright © 2010 Pearson Education Canada
,Instructor’s Solutions Manual for Cost Accounting, 5Ce
1-5 Supply chain describes the flow of goods, services, and information from the initial
sources of materials and services to the delivery of products to consumers, regardless of
whether those activities occur in the same organization or in other organizations. Cost
management is actions managers undertake to satisfy customers while continuously
reducing and controlling costs.
Cost management is most effective when it integrates and coordinates activities
across all companies in the supply chain as well as across each business function in an
individual company’s value chain. Attempts are made to restructure all cost areas to be
more cost-effective.
1-6 A successful management accountant requires general business skills (such as
understanding the strategy of an organization) and people skills (such as motivating
other team members) as well as technical skills (such as using computer software).
Accountants also analyze costs throughout the value chain and co-ordinate cost
reductions to assure no impairment to the product that customers demand.
1-7 Accountants apply techniques to total quality management (TQM), track
customer-response time, and identify bottlenecks in the process of delivering products to
customers. They implement new techniques such as customer relationship management
(CRM) to integrate people and technology in all business functions to put the appropriate
quality of product or service in the customer’s hands.
1-8 Planning decisions are made in choosing goals. Control decisions are made when
implementing the planning decision(s) and evaluating personnel and operations with
respect to the goal(s).
1-9 The three roles management accountants perform are scorekeeping, attention
directing, and problem solving.
1-10 The three guidelines are:
(a) The cost/benefit approach that assures the improvement in quality of the data
provides a benefit to the managers that exceeds the cost of improvement.
(b) Sensitivity to the balance of information that not only supports decisions to improve
profits and motivates honest effort to achieve those profits but also is understandable.
(c) There are different costs to achieve different purposes.
1-11 Technical skill at providing accurate quantitative information is necessary if the
accountant is to support the decisions managers must make to improve profits.
Accountants are, however, only part of the management team and also require the
behavioural skill to function with other team members. Accountants must be able to
“market” their recommendations to those with the authority to make change and those
with the responsibility to implement change.
Copyright © 2010 Pearson Education Canada 2
, Chapter 1
1-12 The new controller could reply in one or more of several ways:
(a) Demonstrate to the plant manager how he or she could make better decisions if the
plant controller was viewed as a resource rather than a dead weight. In a related
way, the plant controller could show how the plant manager’s time and resources
could be saved by viewing the new plant controller as a team member.
(b) Demonstrate to the plant manager a good knowledge of technical aspects at the
plant. This approach may involve doing background reading. It certainly will
involve spending much time on the plant floor speaking to plant personnel.
(c) Show the plant manager examples of the new plant controller’s past successes in
working with line managers in other plants. Examples could include:
• assistance in preparing the budget,
• assistance in analyzing problem situations, and
• assistance in submitting capital budget requests.
(d) Seek assistance from the corporate controller to highlight to the plant manager the
importance of many tasks undertaken by the new plant controller. This approach is a
last resort but may be necessary in some cases.
1-13 The SMAC is the Society of Management Accountants of Canada. The CMA
(Certified Management Accountant) is the professional designation for management
accountants and financial executives. It demonstrates that the holder has passed the
admission criteria and demonstrated the competency of technical knowledge required by
the SMAC and its provincial societies.
1-14 The SMAC sets standards of ethical conduct for management accountants. The
four areas in which standards of ethical conduct exist for management accounts are:
1) Mastery of specific intellectual skill acquired by education and training.
2) Acceptance of duties to society (i.e., protection of the public) as a whole in addition
to duties to the employer or client.
3) An outlook that is essentially objective.
4) A high standard in the conduct and performance of personal service.
1-15 Steps to take when established written policies provide insufficient guidance are:
(a) discuss problem with the immediate superior (except when it appears that the
superior is involved).
(b) clarify relevant concepts by confidential discussion with an objective advisor.
If (a) and (b) and other avenues do not resolve the situation, resignation from the
organization should be considered.
3 Copyright © 2010 Pearson Education Canada
, Instructor’s Solutions Manual for Cost Accounting, 5Ce
1-16 (10 min.) Cost, management, and financial accounting.
1. Financial accountants wait until a transaction occurs, classify it according to GAAP,
then estimate its financial value in full compliance with accounting standards to
communicate the information to external parties in a standardized way.
Management accountants use financial accounting information to classify the
estimates of financial value using a variety of techniques. The classification is
intended to filter relevant costs to inform an internal decision maker.
2. All accountants are members of a profession and are bound by professional duty to act
with integrity. Their duty is to report estimates that do not materially misstate the
economic value of the company.
1-17 (10 min.) Strategy.
1. Managers can look at the external parties upon whom the company depends, such as
customers, suppliers, financing, the existence of substitute products, and assess what
resources are critical before making a decision.
2. Strategy requires managers to examine how the company and its goals fit with the
external environment over which the company has no control. Strategic decisions are
made for the long-term guidance and co-ordination of activities. Operating decisions
are made with a focus on internal strengths and weaknesses. Operating decisions are
made in the short term to achieve expected performance levels.
1-18 (15 min.) Value chain, supply chain, and key success factors.
Change in
Management Accounting Link
a. Total value-chain analysis
b. Key success factors (quality) or
Total value-chain analysis
c. Dual external/internal focus
d. Continuous improvement
e. Customer satisfaction is priority one
Copyright © 2010 Pearson Education Canada 4
MANAGEMENT ACCOUNTANTS:
THEIR VITAL ROLE IN STRATEGIC AND OPERATING DECISIONS
1-1 Management accounting measures and reports financial as well as other types of
information that assist managers in fulfilling the goals of the organization. Financial
accounting focuses on external reporting that is guided by generally accepted accounting
principles.
1-2 Financial accounting is constrained by generally accepted accounting principles.
Management accounting is not restricted to these principles. The result is that:
• management accounting can include assets or liabilities (such as “brand names”
developed internally) not recognized under GAAP, and
• management accounting can use asset or liability measurement rules (such as present
values or resale prices) not permitted under GAAP.
1-3 Management accountants can help in formulating strategy by providing
information about the sources of competitive advantage—for example, the cost,
productivity, or efficiency advantage of their company relative to competitors or the
premium prices a company can charge relative to the costs of adding features that make
its products or services distinctive.
1-4 The business functions in the value chain are:
• Research and development—the generation of, and experimentation with, ideas related
to new products, services, or processes.
• Design of products, services, and processes—the detailed planning and engineering of
products, services, or processes.
• Production—the coordination and assembly of resources to produce a product or
deliver a service.
• Marketing—the process of promoting and selling products or services to customers or
prospective customers.
• Distribution—the mechanism by which products or services are delivered to the
customer.
• Customer service—the support activities provided to customers.
1 Copyright © 2010 Pearson Education Canada
,Instructor’s Solutions Manual for Cost Accounting, 5Ce
1-5 Supply chain describes the flow of goods, services, and information from the initial
sources of materials and services to the delivery of products to consumers, regardless of
whether those activities occur in the same organization or in other organizations. Cost
management is actions managers undertake to satisfy customers while continuously
reducing and controlling costs.
Cost management is most effective when it integrates and coordinates activities
across all companies in the supply chain as well as across each business function in an
individual company’s value chain. Attempts are made to restructure all cost areas to be
more cost-effective.
1-6 A successful management accountant requires general business skills (such as
understanding the strategy of an organization) and people skills (such as motivating
other team members) as well as technical skills (such as using computer software).
Accountants also analyze costs throughout the value chain and co-ordinate cost
reductions to assure no impairment to the product that customers demand.
1-7 Accountants apply techniques to total quality management (TQM), track
customer-response time, and identify bottlenecks in the process of delivering products to
customers. They implement new techniques such as customer relationship management
(CRM) to integrate people and technology in all business functions to put the appropriate
quality of product or service in the customer’s hands.
1-8 Planning decisions are made in choosing goals. Control decisions are made when
implementing the planning decision(s) and evaluating personnel and operations with
respect to the goal(s).
1-9 The three roles management accountants perform are scorekeeping, attention
directing, and problem solving.
1-10 The three guidelines are:
(a) The cost/benefit approach that assures the improvement in quality of the data
provides a benefit to the managers that exceeds the cost of improvement.
(b) Sensitivity to the balance of information that not only supports decisions to improve
profits and motivates honest effort to achieve those profits but also is understandable.
(c) There are different costs to achieve different purposes.
1-11 Technical skill at providing accurate quantitative information is necessary if the
accountant is to support the decisions managers must make to improve profits.
Accountants are, however, only part of the management team and also require the
behavioural skill to function with other team members. Accountants must be able to
“market” their recommendations to those with the authority to make change and those
with the responsibility to implement change.
Copyright © 2010 Pearson Education Canada 2
, Chapter 1
1-12 The new controller could reply in one or more of several ways:
(a) Demonstrate to the plant manager how he or she could make better decisions if the
plant controller was viewed as a resource rather than a dead weight. In a related
way, the plant controller could show how the plant manager’s time and resources
could be saved by viewing the new plant controller as a team member.
(b) Demonstrate to the plant manager a good knowledge of technical aspects at the
plant. This approach may involve doing background reading. It certainly will
involve spending much time on the plant floor speaking to plant personnel.
(c) Show the plant manager examples of the new plant controller’s past successes in
working with line managers in other plants. Examples could include:
• assistance in preparing the budget,
• assistance in analyzing problem situations, and
• assistance in submitting capital budget requests.
(d) Seek assistance from the corporate controller to highlight to the plant manager the
importance of many tasks undertaken by the new plant controller. This approach is a
last resort but may be necessary in some cases.
1-13 The SMAC is the Society of Management Accountants of Canada. The CMA
(Certified Management Accountant) is the professional designation for management
accountants and financial executives. It demonstrates that the holder has passed the
admission criteria and demonstrated the competency of technical knowledge required by
the SMAC and its provincial societies.
1-14 The SMAC sets standards of ethical conduct for management accountants. The
four areas in which standards of ethical conduct exist for management accounts are:
1) Mastery of specific intellectual skill acquired by education and training.
2) Acceptance of duties to society (i.e., protection of the public) as a whole in addition
to duties to the employer or client.
3) An outlook that is essentially objective.
4) A high standard in the conduct and performance of personal service.
1-15 Steps to take when established written policies provide insufficient guidance are:
(a) discuss problem with the immediate superior (except when it appears that the
superior is involved).
(b) clarify relevant concepts by confidential discussion with an objective advisor.
If (a) and (b) and other avenues do not resolve the situation, resignation from the
organization should be considered.
3 Copyright © 2010 Pearson Education Canada
, Instructor’s Solutions Manual for Cost Accounting, 5Ce
1-16 (10 min.) Cost, management, and financial accounting.
1. Financial accountants wait until a transaction occurs, classify it according to GAAP,
then estimate its financial value in full compliance with accounting standards to
communicate the information to external parties in a standardized way.
Management accountants use financial accounting information to classify the
estimates of financial value using a variety of techniques. The classification is
intended to filter relevant costs to inform an internal decision maker.
2. All accountants are members of a profession and are bound by professional duty to act
with integrity. Their duty is to report estimates that do not materially misstate the
economic value of the company.
1-17 (10 min.) Strategy.
1. Managers can look at the external parties upon whom the company depends, such as
customers, suppliers, financing, the existence of substitute products, and assess what
resources are critical before making a decision.
2. Strategy requires managers to examine how the company and its goals fit with the
external environment over which the company has no control. Strategic decisions are
made for the long-term guidance and co-ordination of activities. Operating decisions
are made with a focus on internal strengths and weaknesses. Operating decisions are
made in the short term to achieve expected performance levels.
1-18 (15 min.) Value chain, supply chain, and key success factors.
Change in
Management Accounting Link
a. Total value-chain analysis
b. Key success factors (quality) or
Total value-chain analysis
c. Dual external/internal focus
d. Continuous improvement
e. Customer satisfaction is priority one
Copyright © 2010 Pearson Education Canada 4
