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Chapter 1
Managerial Accounting and the Business
Environment
Solutions to Questions
1-1 Managerial accounting is concerned with from making one product to making another al-
providing information to managers for use within lows the company to respond more quickly to cus-
the organization. Financial accounting is con- tomers. Finally, smaller batches make it easier to
cerned with providing information to stockholders, spot manufacturing problems before they result in
creditors, and others outside of the organization. a large number of defective units.
1-2 Essentially, managers carry out three ma- 1-7 The main benefits of a successful JIT sys-
jor activities in an organization: planning, directing tem are reductions in: (1) funds tied up in inven-
and motivating, and controlling. All three activities tories; (2) space requirements; (3) throughput
involve decision making. time; and (4) defects.
1-3 The Planning and Control Cycle involves 1-8 TQM generally approaches improvement
formulating plans, implementing plans, measuring in a series of small steps that are planned and im-
performance, and evaluating differences between plemented by teams of front-line workers. Process
planned and actual performance. Reengineering involves completely redesigning
business processes from the ground up—often
1-4 A line position is directly related to the with the use of outside consultants.
achievement of the basic objectives of the organi-
zation. A staff position is not directly related to the 1-9 If Process Reengineering is successful,
achievement of those objectives; rather, it is sup- fewer workers are needed. If management re-
portive, providing services and assistance to other sponds by laying off workers, morale will almost
parts of the organization. certain suffer.
1-5 In contrast to financial accounting, mana- 1-10 Some benefits from improvement efforts
gerial accounting: (1) focuses on the needs of the come from cost reductions, but the primary bene-
manager; (2) places more emphasis on the future; fit is often an increase in capacity. At non-con-
(3) emphasizes relevance and flexibility, rather straints, increases in capacity just add to the al-
than precision; (4) emphasizes the segments of an ready-existing excess capacity. Therefore, im-
organization; (5) is not governed by GAAP; and provement efforts should ordinarily focus on the
(6) is not mandatory. constraint.
1-6 A number of benefits accrue from reduced 1-11 If people generally did not act ethically in
setup time. First, reduced setup time allows a business, no one would trust anyone else and
company to produce in smaller batches, which in people would be reluctant to enter into business
turn reduces the level of inventories. Second, re- transactions. The result would be less funds raised
duced setup time allows a company to spend more in capital markets, fewer goods and services avail-
time producing goods and less time getting ready able for sale, lower quality, and higher prices.
to produce. Third, the ability to rapidly change
© The McGraw-Hill Companies, Inc., 2006.
Solutions Manual, Chapter 1 1
www.jntuworld.com
,www.jntuworld.com
Exercise 1-1 (10 minutes)
1. Line
2. Directing and motivating
3. Budgets
4. Planning
5. Staff
6. Decentralization
7. Precision; Nonmonetary data
8. Managerial accounting; Financial accounting
9. Feedback
10. Controller
11. Performance report
12. Chief Financial Officer
© The McGraw-Hill Companies, Inc., 2006. All rights reserved.
2 Managerial Accounting, 11th Edition
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,www.jntuworld.com
Exercise 1-2 (10 minutes)
1. Total quality management; Process reengineering
2. Just-In-Time
3. Nonconstraint
4. Benchmarking
5. Setup
6. Constraint
7. Non-value-added activities
8. Business process
© The McGraw-Hill Companies, Inc., 2006. All rights reserved.
Solutions Manual, Chapter 1 3
www.jntuworld.com
,www.jntuworld.com
Exercise 1-3 (15 minutes)
If cashiers routinely shortchanged customers whenever the opportunity
presented itself, most of us would be careful to count our change before
leaving the counter. Imagine what effect this would have on the line at
your favorite fast-food restaurant. How would you like to wait in line while
each and every customer laboriously counts out his or her change? Addi-
tionally, if you can’t trust the cashiers to give honest change, can you trust
the cooks to take the time to follow health precautions such as washing
their hands? If you can’t trust anyone at the restaurant would you even
want to eat out?
Generally, when we buy goods and services in the free market, we assume
we are buying from people who have a certain level of ethical standards. If
we could not trust people to maintain those standards, we would be reluc-
tant to buy. The net result of widespread dishonesty would be a shrunken
economy with a lower growth rate and fewer goods and services for sale at
a lower overall level of quality.
© The McGraw-Hill Companies, Inc., 2006. All rights reserved.
4 Managerial Accounting, 11th Edition
www.jntuworld.com
Chapter 1
Managerial Accounting and the Business
Environment
Solutions to Questions
1-1 Managerial accounting is concerned with from making one product to making another al-
providing information to managers for use within lows the company to respond more quickly to cus-
the organization. Financial accounting is con- tomers. Finally, smaller batches make it easier to
cerned with providing information to stockholders, spot manufacturing problems before they result in
creditors, and others outside of the organization. a large number of defective units.
1-2 Essentially, managers carry out three ma- 1-7 The main benefits of a successful JIT sys-
jor activities in an organization: planning, directing tem are reductions in: (1) funds tied up in inven-
and motivating, and controlling. All three activities tories; (2) space requirements; (3) throughput
involve decision making. time; and (4) defects.
1-3 The Planning and Control Cycle involves 1-8 TQM generally approaches improvement
formulating plans, implementing plans, measuring in a series of small steps that are planned and im-
performance, and evaluating differences between plemented by teams of front-line workers. Process
planned and actual performance. Reengineering involves completely redesigning
business processes from the ground up—often
1-4 A line position is directly related to the with the use of outside consultants.
achievement of the basic objectives of the organi-
zation. A staff position is not directly related to the 1-9 If Process Reengineering is successful,
achievement of those objectives; rather, it is sup- fewer workers are needed. If management re-
portive, providing services and assistance to other sponds by laying off workers, morale will almost
parts of the organization. certain suffer.
1-5 In contrast to financial accounting, mana- 1-10 Some benefits from improvement efforts
gerial accounting: (1) focuses on the needs of the come from cost reductions, but the primary bene-
manager; (2) places more emphasis on the future; fit is often an increase in capacity. At non-con-
(3) emphasizes relevance and flexibility, rather straints, increases in capacity just add to the al-
than precision; (4) emphasizes the segments of an ready-existing excess capacity. Therefore, im-
organization; (5) is not governed by GAAP; and provement efforts should ordinarily focus on the
(6) is not mandatory. constraint.
1-6 A number of benefits accrue from reduced 1-11 If people generally did not act ethically in
setup time. First, reduced setup time allows a business, no one would trust anyone else and
company to produce in smaller batches, which in people would be reluctant to enter into business
turn reduces the level of inventories. Second, re- transactions. The result would be less funds raised
duced setup time allows a company to spend more in capital markets, fewer goods and services avail-
time producing goods and less time getting ready able for sale, lower quality, and higher prices.
to produce. Third, the ability to rapidly change
© The McGraw-Hill Companies, Inc., 2006.
Solutions Manual, Chapter 1 1
www.jntuworld.com
,www.jntuworld.com
Exercise 1-1 (10 minutes)
1. Line
2. Directing and motivating
3. Budgets
4. Planning
5. Staff
6. Decentralization
7. Precision; Nonmonetary data
8. Managerial accounting; Financial accounting
9. Feedback
10. Controller
11. Performance report
12. Chief Financial Officer
© The McGraw-Hill Companies, Inc., 2006. All rights reserved.
2 Managerial Accounting, 11th Edition
www.jntuworld.com
,www.jntuworld.com
Exercise 1-2 (10 minutes)
1. Total quality management; Process reengineering
2. Just-In-Time
3. Nonconstraint
4. Benchmarking
5. Setup
6. Constraint
7. Non-value-added activities
8. Business process
© The McGraw-Hill Companies, Inc., 2006. All rights reserved.
Solutions Manual, Chapter 1 3
www.jntuworld.com
,www.jntuworld.com
Exercise 1-3 (15 minutes)
If cashiers routinely shortchanged customers whenever the opportunity
presented itself, most of us would be careful to count our change before
leaving the counter. Imagine what effect this would have on the line at
your favorite fast-food restaurant. How would you like to wait in line while
each and every customer laboriously counts out his or her change? Addi-
tionally, if you can’t trust the cashiers to give honest change, can you trust
the cooks to take the time to follow health precautions such as washing
their hands? If you can’t trust anyone at the restaurant would you even
want to eat out?
Generally, when we buy goods and services in the free market, we assume
we are buying from people who have a certain level of ethical standards. If
we could not trust people to maintain those standards, we would be reluc-
tant to buy. The net result of widespread dishonesty would be a shrunken
economy with a lower growth rate and fewer goods and services for sale at
a lower overall level of quality.
© The McGraw-Hill Companies, Inc., 2006. All rights reserved.
4 Managerial Accounting, 11th Edition
www.jntuworld.com
