Solutions Manual for Fundamental Managerial Accounting Concepts 7th Edition By Edmonds Tsay Philip Olds (All Chapters, 100% Original Verified, A+ Grade)

This is Solutions Manual zip file. PDF file is giving error in upload, thats why zip file is added. Check Sample Preview: Answers to Questions 1. Financial accounting deals with regulated, historical, financial information that pertains to the whole company and is designed primarily to meet the information needs of outsiders. Managerial accounting is concerned with unregulated financial, economic, and nonfinancial data, which pertains more to the sub-units of the organization, that is current and future oriented, and that is designed primarily to meet the information needs of insiders. 2. The value-added principle means that management accountants are free to engage in any information gathering and reporting activity so long as the activity adds value in excess of its cost. Estimates of future product costs are permissible in managerial accounting reports for budgeting and product costing but would not be allowed by financial regulations in financial accounting. 3. The two dimensions of the TQM program are: (1) management should follow a continuous, systematic problem solving philosophy that encourages achievement of zero defects in production and engages all employees to eliminate waste and errors and to simplify the design and delivery of products and services to customers, and (2) organizations need a strong commitment to customer satisfaction. TQM is being used in business to maintain profitability in an increasingly competitive global market. In this environment, profit margins are tight, and therefore, inefficiencies can more easily erode business profits. To eliminate waste, errors, and dissatisfied customers, information must be timely and relevant in order to prevent or discover and correct mistakes immediately. Chapter 01 - Management Accounting and Corporate Governance 1-2 4. Both financial and managerial accountants need cost information about the company’s products and services. In managerial accounting cost information is useful in product pricing decisions and is an essential part of cost control (comparing actual product cost to budgeted product cost to assess needed improvement) and performance evaluation (assess managers’ success in controlling and eliminating unnecessary cost). In financial accounting, cost information about the product is needed to determine ending inventory on the balance sheet and cost of goods sold on the income statement. Product costing in financial accounting can impact the decisions of not only managers but also outsiders such as investors, creditors, and taxing authorities. Product costing information in managerial accounting can affect the product’s selling price as well as management’s decisions as to whether cost correction changes are needed. 5. Costs are assets used in the process of earning revenue but not all costs of the earning process are used in the same period in which they are incurred. Therefore, a cost that is used in the process of earning revenue is recorded as an expense (e.g. administrative salaries and product cost for products sold) and a cost that has future benefit in the earning process is recorded as an asset in the period that it is incurred. 6. The cash paid to production workers has not been used to produce revenue but to produce inventory. The revenue is earned when the inventory is sold at which time the cost of salaries associated with those products sold should be expensed as cost of goods sold. 7. Product costs associated with goods that have not been sold are recorded in the account called inventory. Inventory cost is shown on the balance sheet as an asset. The amount of total assets and net income will be higher if a product cost is classified as an asset than if it is expensed. Product cost associated with goods that have been sold should be recorded in the account called cost of goods sold. Cost of goods sold is an expense shown on the income statement. The amount of total assets and net income will be lower if a product cost is classified as an expense as opposed to being classified as an asset. Chapter 01 - Management Accounting and Corporate Governance 1-3 8. An indirect product cost cannot be easily or economically traced to a specific product. Product costs that would be considered indirect include costs such as production supplies, salaries of production supervisors, and depreciation, rent, and utilities on factory facilities. 9. Product costs are all costs incurred to obtain a product or provide a service. These costs are treated as assets, recorded in inventory, and expensed when the associated products are sold. Period costs are all costs not associated with a product. They are associated with the general, selling, and administrative functions of the business and most are expensed in the period in which the associated economic sacrifice is made. A product cost would be the cost of direct materials used in the production of a product. A period cost would be rent on administrative facilities. 10. The effects of cost classification on the financial statements can have important implications with respect to the following: (1) The availability of financing - Investors and creditors use financial statement data to predict businesses’ future earnings. Favorable financial statements provide evidence of favorable future performance whereas unfavorable financial statements are an indication of possible poor future financial performance. A company with favorable financial performance is more likely to generate sufficient cash flows to make interest payments, to repay the principal balance of its liabilities, and to pay dividends. Hence, investors and creditors believe they have a greater probability of receiving interest payments, the return of principal, and return on investment when companies show favorable financial statements. Since expenses reduce profit and financial performance, classifying a cost as an expense will inhibit the company’s ability to obtain financing. Classifying a cost as an asset, which will increase profit, total assets, and equity, enhances businesses’ ability to obtain financing. Chapter 01 - Management Accounting and Corporate Governance 1-4 10. (Continued) (2) Management motivation - Executive compensation may be affected by financial statement data. Many managers’ bonuses are based on a percentage of net income. If costs are classified as expenses, net income will be reduced which in turn affects managerial income. Managers may even be tempted to misclassify costs in order to manipulate financial statement data to their advantage. (3) Income tax considerations - With respect to taxes, managers prefer to classify costs as expenses rather than assets. Classifying a cost as an expense reduces net income and in turn reduces income taxes, which are determined by computing a designated percentage of taxable income. 11. Cost allocation is the process of dividing a total cost into parts and assigning the parts to relevant objects. The determination of interest expense on a note payable is an allocation. If the note pays $1,200 of interest a year and has been outstanding for 3 months, then 3/12 or $300 of the $1,200 total interest expense should be allocated to interest expense for the three-month period. The remaining 9/12 of interest would be allocated to interest expense for the remaining 9 months of the year. 12. In recognition of its responsibility to uphold high ethical standards of conduct, the Institute of Management Accountants issued a Statement of Ethical Professional Conduct. The statement sets forth professional ethical standards covering the areas of competence, confidentiality, integrity, and objectivity that management accountants are required to abide by in order to maintain their professional and personal integrity.