Chapter 1
An Introduction to Managerial
Accounting
Solutions to Questions
1-1 Managerial accounting is concerned with providing information primarily to
managers for their use internally in the organization for the purposes of
strategy, planning, implementation and control. Financial accounting is
concerned with providing information primarily to investors, creditors, and
others outside of the organization.
1-2 Essentially, the manager carries out three major activities in an
organization: planning, implementation, and control. All three activities
involve decision-making and use managerial accounting information. This
is depicted in Exhibit 1-1.
1-3 The Planning, Implementation and Control Cycle involves the following
steps: (1) formulating plans which often includes preparing budgets, (2)
overseeing day-to-day activities which includes organizing, directing and
motivating people, resource allocation and decision making, and (3)
controlling which includes providing feedback via performance reports.
1-4 In contrast to financial accounting, managerial accounting: (1) focuses on
the needs of the manager; (2) places more emphasis on the future; (3)
emphasizes relevance and timeliness, rather than verifiability and
precision; (4) emphasizes the segments of an organization; (5) is not
governed by IFRS or ASPE; and (6) is not mandatory.
1-5 The lean business model focuses on continuous improvement by
eliminating waste in the organization. Companies that adopt the lean
business model usually implement one or more of the following
management practices.
Just-in-time (JIT): A production and inventory control system in
which materials are purchased and units are produced only as
needed to meet actual customer demand.
Total quality management (TQM): An approach to continuous
improvement that focuses on serving customers and uses teams of
front-line workers to systematically identify and solve problems.
Process re-engineering: An approach to improvement that
involves completely redesigning business processes in order to
eliminate unnecessary steps, reduce errors, and reduce costs.
Copyright © 2017 McGraw-Hill Education. All rights reserved.
Solutions Manual, Chapter 1 1
, Theory of constraints (TOC): A management approach that
emphasizes the importance of managing constraints.
1-6 Pros
Funds tied up in maintaining inventory can be used elsewhere
Areas previously used to store inventories are made available for
other more productive uses
The time required to fill an order is reduced, resulting in quicker
response to customers and consequentially greater potential sales
Defect rates are reduced resulting in less waste and greater
customer satisfaction
More effective operations
Cons
Increased number of purchase orders to buy raw materials and/or
other components used in manufacturing products
There is little room for errors and defects in products because this
could throw the production facility off schedule
There is a high reliance and dependence on suppliers to meet
delivery deadlines as well as supply products that have no defects
and require minimal inspection
1-7 Agree. Ethical behaviour is the foundation of a successful market
economy. If we cannot trust people to act ethically in their business
dealings with us, we will be inclined to invest less, scrutinize more and
waste money and time (scarce resources) trying to protect ourselves.
Ethical standards and Codes of Conduct aid the smooth running of the
economy. In addition, the lack of regulatory requirements (IFRS, ASPE)
regarding managerial accounting makes ethical behaviour even more
critical.
Copyright © 2017 McGraw-Hill Education. All rights reserved.
2 Introduction to Managerial Accounting, Fifth Canadian Edition
,Solutions to Exercises
Exercise 1-1 (LO1 CC2)
Item Financial Managerial
Accounting Accounting
a) Preparing a cash budget for the X
next quarter
b) Analyzing the profitability of a X
request from a potential
customer
c) Accumulating the transactions X
for the previous six months to
prepare an income statement
d) Preparing a weekly X
performance report for the
branch manager
e) Preparing an announcement to X
be released to the financial
analysts
Exercise 1-2 (LO1 CC1)
Planning Implementation Control
a) Doing a “cost-benefit” X
analysis of adding a new
branch versus installing new
ATMs
b) Estimating the cost of raw X
materials to be purchased
during the next quarter
c) Analyzing market demand X
Copyright © 2017 McGraw-Hill Education. All rights reserved.
Solutions Manual, Chapter 1 3
, to assist in the preparation
of the sales budget
d) Compiling the labour report X
for the past week
e) Outlining the changes to a X
process based on a process
reengineering team report
f) Documenting the savings X
from reductions in raw
materials inventory
resulting from the adoption
of a just-in-time inventory
system
Copyright © 2017 McGraw-Hill Education. All rights reserved.
4 Introduction to Managerial Accounting, Fifth Canadian Edition
An Introduction to Managerial
Accounting
Solutions to Questions
1-1 Managerial accounting is concerned with providing information primarily to
managers for their use internally in the organization for the purposes of
strategy, planning, implementation and control. Financial accounting is
concerned with providing information primarily to investors, creditors, and
others outside of the organization.
1-2 Essentially, the manager carries out three major activities in an
organization: planning, implementation, and control. All three activities
involve decision-making and use managerial accounting information. This
is depicted in Exhibit 1-1.
1-3 The Planning, Implementation and Control Cycle involves the following
steps: (1) formulating plans which often includes preparing budgets, (2)
overseeing day-to-day activities which includes organizing, directing and
motivating people, resource allocation and decision making, and (3)
controlling which includes providing feedback via performance reports.
1-4 In contrast to financial accounting, managerial accounting: (1) focuses on
the needs of the manager; (2) places more emphasis on the future; (3)
emphasizes relevance and timeliness, rather than verifiability and
precision; (4) emphasizes the segments of an organization; (5) is not
governed by IFRS or ASPE; and (6) is not mandatory.
1-5 The lean business model focuses on continuous improvement by
eliminating waste in the organization. Companies that adopt the lean
business model usually implement one or more of the following
management practices.
Just-in-time (JIT): A production and inventory control system in
which materials are purchased and units are produced only as
needed to meet actual customer demand.
Total quality management (TQM): An approach to continuous
improvement that focuses on serving customers and uses teams of
front-line workers to systematically identify and solve problems.
Process re-engineering: An approach to improvement that
involves completely redesigning business processes in order to
eliminate unnecessary steps, reduce errors, and reduce costs.
Copyright © 2017 McGraw-Hill Education. All rights reserved.
Solutions Manual, Chapter 1 1
, Theory of constraints (TOC): A management approach that
emphasizes the importance of managing constraints.
1-6 Pros
Funds tied up in maintaining inventory can be used elsewhere
Areas previously used to store inventories are made available for
other more productive uses
The time required to fill an order is reduced, resulting in quicker
response to customers and consequentially greater potential sales
Defect rates are reduced resulting in less waste and greater
customer satisfaction
More effective operations
Cons
Increased number of purchase orders to buy raw materials and/or
other components used in manufacturing products
There is little room for errors and defects in products because this
could throw the production facility off schedule
There is a high reliance and dependence on suppliers to meet
delivery deadlines as well as supply products that have no defects
and require minimal inspection
1-7 Agree. Ethical behaviour is the foundation of a successful market
economy. If we cannot trust people to act ethically in their business
dealings with us, we will be inclined to invest less, scrutinize more and
waste money and time (scarce resources) trying to protect ourselves.
Ethical standards and Codes of Conduct aid the smooth running of the
economy. In addition, the lack of regulatory requirements (IFRS, ASPE)
regarding managerial accounting makes ethical behaviour even more
critical.
Copyright © 2017 McGraw-Hill Education. All rights reserved.
2 Introduction to Managerial Accounting, Fifth Canadian Edition
,Solutions to Exercises
Exercise 1-1 (LO1 CC2)
Item Financial Managerial
Accounting Accounting
a) Preparing a cash budget for the X
next quarter
b) Analyzing the profitability of a X
request from a potential
customer
c) Accumulating the transactions X
for the previous six months to
prepare an income statement
d) Preparing a weekly X
performance report for the
branch manager
e) Preparing an announcement to X
be released to the financial
analysts
Exercise 1-2 (LO1 CC1)
Planning Implementation Control
a) Doing a “cost-benefit” X
analysis of adding a new
branch versus installing new
ATMs
b) Estimating the cost of raw X
materials to be purchased
during the next quarter
c) Analyzing market demand X
Copyright © 2017 McGraw-Hill Education. All rights reserved.
Solutions Manual, Chapter 1 3
, to assist in the preparation
of the sales budget
d) Compiling the labour report X
for the past week
e) Outlining the changes to a X
process based on a process
reengineering team report
f) Documenting the savings X
from reductions in raw
materials inventory
resulting from the adoption
of a just-in-time inventory
system
Copyright © 2017 McGraw-Hill Education. All rights reserved.
4 Introduction to Managerial Accounting, Fifth Canadian Edition
