MANAGEMENT ACCOUNTING - Solutions Manual
TABLE OF CONTENTS
Chapt 1 1-1 – 1-19
er MANAGEMENT ACCOUNTING:
AN OVERVIEW
2 Management Accounting and the 2-1 – 2-5
Business Environment
3 Understanding of 3-1 – 3-10
Financial Statements
4 Financial Statements Analysis – I 4-1 – 4-9
5 Financial Statements Analysis – II 5-1 – 5-38
6 Cash Flow Analysis 6-1 – 6-18
7 Gross Profit Valuation Analysis and
Earnings Per Share 7-1 – 7-7
Determination
8 Cost Concepts and Classifications 8-1 – 8-17
9 Cost Behavior: Analysis and Use 9-1 – 9-30
1 Systems Design: Job-Order Costing 10-1 – 10-16
0 and Process Costing
1 Systems Design: Activity-Based 11-1 – 11-15
1 Costing and Management
1 Variable Costing 12-1 – 12-21
2
1 Cost-Volume-Profit 13-1 – 13-37
3
Relationships
1 Responsibility Accounting and 14-1 – 14-26
4 Transfer Pricing
1 Functional and Activity-Based 15-1 – 15-22
5 Budgeting
1 Standard Costs and Operating 16-1 – 16-17
6 Performance Measures
1-1
,Chapter 1 Management Accounting: An Overview
1 Application of Quantitative
7 Techniques in Planning, Control 17-1 – 17-2
and Decision Making - I
1 Application of Quantitative
8 Techniques in Planning, Control 18-1 – 18-7
and Decision Making – II
1 Relevant Costs for Decision Making 19-1 – 19-33
9
2 Capital Budgeting Decisions 20-1 – 20-16
0
2 Decentralized Operations and 21-1 – 21-4
1 Segment Reporting
2 Business Planning 22-1 – 22-6
2
2 Strategic Cost Management; 23-1 – 23-4
3 Balanced Scorecard
2 Advanced Analysis and Appraisal of
4 Performance: Financial and 24-1 – 24-12
Nonfinancial
2 Managing Productivity and 25-1 – 25-19
5 Marketing Effectiveness
2 Executive Performance Measures 26-1 – 26-3
6 and Compensation
2 Managing Accounting in a 27-1 – 27-22
7 Changing Environment
CHAPTER 1
MANAGEMENT ACCOUNTING: AN OVERVIEW
I. Questions
1-2
, Management Accounting: An Overview Chapter 1
1. Use of the word “need” in the quoted passage is pejorative. It implies an
unlimited level of demand for information. However, rational managers
apply a cost-benefit criterion to information and will only want
accounting information if its benefits exceed its costs. Accounting
information provides benefits by improving decision making and
controlling behavior in organizations. In most organizations, accounting
information is very prevalent which implies that its benefits exceed its
costs. Hence, successful managers will find it in their self-interest to
learn how to use accounting information in these organizations.
Clearly, this statement is incurred in those firms where accounting
information has very limited usefulness (e.g., if the accounting
information is often wrong or is not produced in a timely fashion). In
these organizations, managers do not find the accounting information to
have benefits in excess of its costs, will not use it, do not need to know
how to use it, and definitely do not need it.
2. a. Historical costs are of limited use in making planning decisions in a
rapidly changing environment. With changing products, processes
and prices, the historical costs are inadequate approximations of the
opportunity costs of using resources.
Historical costs may, however, be useful for control purposes, as they
provide information about the activities of managers and can be used
as performance measures to evaluate managers.
b. The purpose of accounting systems is to provide information for
planning purposes and control. Although historical costs are not
generally appropriate for planning purposes, additional measures are
costly to make. An accounting system should include additional
measures if the benefits of improved decision making are greater
than the costs of the additional information.
3. Finance and economics textbooks traditionally state that the goal of a
profit organization is to maximize shareholder wealth. Managers are
frequently presumed to act in the best interest of the shareholder,
although recent finance literature recognizes that appropriate incentives
are necessary to align manager interests with shareholder interests. The
goal, however, are not very clear as to how this is achieved. Most
finance textbooks focus on financing decisions and not on the use of
assets and dealing with customers.
1-3
, Chapter 1 Management Accounting: An Overview
Marketing’s goal of satisfying customers recognizes that customers are
the source of revenues for the organization, and therefore the means
through which shareholder value is increased. However, customer
satisfaction is only valuable insofar as it creates shareholder wealth. The
further goal of marketing is to ensure that customer satisfaction is
maximized without compromising the organization’s profitability.
4. Yes. Planning is really much more vital than control; that is, superior
control is fruitless if faulty plans are being implemented. However,
planning and control are so intertwined that it seems artificial to draw
rigid lines of separation between them.
5. Yes. The controller has line authority over the personnel in his own
department but is a staff executive with respect to the other departments.
6. Line authority is exerted downward over subordinates. Staff authority is
the authority to advise but not command others; it is exercised laterally
or upward. Functional authority is the right to command action laterally
and downward with regard to a specific function or specialty.
7. Cost accounting is the controller’s primary means of implementing the 7-
point concept of modern controllership. Cost accounting is intertwined
with all seven duties to some extent, but its major focus is on the first
three.
8. Bettina Company
President
VP, Production VP, Finance VP, Sales
Controller Treasurer
Assistant Assistant
Controller Treasurer
Special Cost Tax Internal General System &
Studies Accounting Manager Audit Accounting EDP
Manager Manager Manager Manager Manager
1-4
TABLE OF CONTENTS
Chapt 1 1-1 – 1-19
er MANAGEMENT ACCOUNTING:
AN OVERVIEW
2 Management Accounting and the 2-1 – 2-5
Business Environment
3 Understanding of 3-1 – 3-10
Financial Statements
4 Financial Statements Analysis – I 4-1 – 4-9
5 Financial Statements Analysis – II 5-1 – 5-38
6 Cash Flow Analysis 6-1 – 6-18
7 Gross Profit Valuation Analysis and
Earnings Per Share 7-1 – 7-7
Determination
8 Cost Concepts and Classifications 8-1 – 8-17
9 Cost Behavior: Analysis and Use 9-1 – 9-30
1 Systems Design: Job-Order Costing 10-1 – 10-16
0 and Process Costing
1 Systems Design: Activity-Based 11-1 – 11-15
1 Costing and Management
1 Variable Costing 12-1 – 12-21
2
1 Cost-Volume-Profit 13-1 – 13-37
3
Relationships
1 Responsibility Accounting and 14-1 – 14-26
4 Transfer Pricing
1 Functional and Activity-Based 15-1 – 15-22
5 Budgeting
1 Standard Costs and Operating 16-1 – 16-17
6 Performance Measures
1-1
,Chapter 1 Management Accounting: An Overview
1 Application of Quantitative
7 Techniques in Planning, Control 17-1 – 17-2
and Decision Making - I
1 Application of Quantitative
8 Techniques in Planning, Control 18-1 – 18-7
and Decision Making – II
1 Relevant Costs for Decision Making 19-1 – 19-33
9
2 Capital Budgeting Decisions 20-1 – 20-16
0
2 Decentralized Operations and 21-1 – 21-4
1 Segment Reporting
2 Business Planning 22-1 – 22-6
2
2 Strategic Cost Management; 23-1 – 23-4
3 Balanced Scorecard
2 Advanced Analysis and Appraisal of
4 Performance: Financial and 24-1 – 24-12
Nonfinancial
2 Managing Productivity and 25-1 – 25-19
5 Marketing Effectiveness
2 Executive Performance Measures 26-1 – 26-3
6 and Compensation
2 Managing Accounting in a 27-1 – 27-22
7 Changing Environment
CHAPTER 1
MANAGEMENT ACCOUNTING: AN OVERVIEW
I. Questions
1-2
, Management Accounting: An Overview Chapter 1
1. Use of the word “need” in the quoted passage is pejorative. It implies an
unlimited level of demand for information. However, rational managers
apply a cost-benefit criterion to information and will only want
accounting information if its benefits exceed its costs. Accounting
information provides benefits by improving decision making and
controlling behavior in organizations. In most organizations, accounting
information is very prevalent which implies that its benefits exceed its
costs. Hence, successful managers will find it in their self-interest to
learn how to use accounting information in these organizations.
Clearly, this statement is incurred in those firms where accounting
information has very limited usefulness (e.g., if the accounting
information is often wrong or is not produced in a timely fashion). In
these organizations, managers do not find the accounting information to
have benefits in excess of its costs, will not use it, do not need to know
how to use it, and definitely do not need it.
2. a. Historical costs are of limited use in making planning decisions in a
rapidly changing environment. With changing products, processes
and prices, the historical costs are inadequate approximations of the
opportunity costs of using resources.
Historical costs may, however, be useful for control purposes, as they
provide information about the activities of managers and can be used
as performance measures to evaluate managers.
b. The purpose of accounting systems is to provide information for
planning purposes and control. Although historical costs are not
generally appropriate for planning purposes, additional measures are
costly to make. An accounting system should include additional
measures if the benefits of improved decision making are greater
than the costs of the additional information.
3. Finance and economics textbooks traditionally state that the goal of a
profit organization is to maximize shareholder wealth. Managers are
frequently presumed to act in the best interest of the shareholder,
although recent finance literature recognizes that appropriate incentives
are necessary to align manager interests with shareholder interests. The
goal, however, are not very clear as to how this is achieved. Most
finance textbooks focus on financing decisions and not on the use of
assets and dealing with customers.
1-3
, Chapter 1 Management Accounting: An Overview
Marketing’s goal of satisfying customers recognizes that customers are
the source of revenues for the organization, and therefore the means
through which shareholder value is increased. However, customer
satisfaction is only valuable insofar as it creates shareholder wealth. The
further goal of marketing is to ensure that customer satisfaction is
maximized without compromising the organization’s profitability.
4. Yes. Planning is really much more vital than control; that is, superior
control is fruitless if faulty plans are being implemented. However,
planning and control are so intertwined that it seems artificial to draw
rigid lines of separation between them.
5. Yes. The controller has line authority over the personnel in his own
department but is a staff executive with respect to the other departments.
6. Line authority is exerted downward over subordinates. Staff authority is
the authority to advise but not command others; it is exercised laterally
or upward. Functional authority is the right to command action laterally
and downward with regard to a specific function or specialty.
7. Cost accounting is the controller’s primary means of implementing the 7-
point concept of modern controllership. Cost accounting is intertwined
with all seven duties to some extent, but its major focus is on the first
three.
8. Bettina Company
President
VP, Production VP, Finance VP, Sales
Controller Treasurer
Assistant Assistant
Controller Treasurer
Special Cost Tax Internal General System &
Studies Accounting Manager Audit Accounting EDP
Manager Manager Manager Manager Manager
1-4
