, Solution manual For Cost Accounting, 1e
Farmer
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, Chapter 1
Cost Accounting Has Purpose
Note: the end of chapter brief exercises, exercises, and problems are coded K (knowledge), C
(comprehension), AP (application), AN (analysis), S (synthesize), and E (evaluation) according
to the original Blooms Taxonomy published in 1956.
Assignment Classification Table (By Learning Objective)
Brief
Learning Objectives Questions Exercises Exercises Problems
1. Explore the elements that 1, 2, 3, 4 1, 2, 3, 4, 5, 1, 2, 3 1, 2, 3, 4
support a company’s purpose, 6
as well as your own.
2. Connect the purpose of cost 5, 6, 7 7, 8, 9 4, 5, 6 5, 6
accounting with the role of
accountants in organizations.
3. Outline the frameworks, 8, 9, 10, 11, 10, 11, 12 7, 8, 9, 7, 8, 9
including ethics, that guide the 12 10
profession.
1-1
© 2022 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 1e, Job Costing Visualized (For Instructor Use Only)
,Assignment Characteristics Table
Level of Time
Item Description Difficulty (minutes)
E1.1 Get to know the mission and vision of each of the Big 4 Moderate 10–15
firms and their underlying values.
E1.2 Evaluate the state of competition within an industry Moderate 10–15
given a company’s SWOT analysis.
E1.3 Explain how a balanced scorecard reveals a company’s Moderate 10–15
strategy.
E1.4 Get to know how cost accounting skill sets are valued as Moderate 10–15
consulting services in the Big 4.
E1.5 Use the decision-making framework to make a personal Moderate 10–15
decision.
E1.6 Use the decision-making framework to make a business Simple 10–15
decision.
E1.7 Get to know the IMA. Simple 5–10
E1.8 Get to know the continuing education requirements for Moderate 10–15
IMA’s flagship certification.
E1.9 Get to know IMA’s Statement of Ethical Professional Moderate 15–20
Practice.
E1.10 Get to know the AICPA.
Simple 5–10
P1.1 What is your own personal purpose? Simple 5–10
P1.2 What are your goals in this course? Simple 5–10
P1.3 What strategies will you use to achieve your course Simple 10–15
goals?
P1.4 Conduct your own personal SWOT analysis related to Moderate 10–15
your role as a student.
P1.5 Determine which data analytics approaches would be Moderate 10–15
useful in addressing a business question.
P1.6 Explain the steps in the value chain. Moderate 5–10
P1.7 Get to know IMA’s Statements on Management Moderate 10–15
Accounting.
P1.8 Get to know the CPE requirements for CPAs in your Moderate 10–15
state.
P1.9 Get to know how NASBA supports the State Boards of
Accountancy.
Moderate 15–20
Case Sort out the issues in an ethical dilemma using IMA’s Moderate 10–15
Statement of Ethical Professional Practice alongside the
decision-making framework.
1-2
© 2022 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 1e, Job Costing Visualized (For Instructor Use Only)
,Answers to Questions
1. A vision reflects what you strive to be (or what an organization strives to be) or what you strive to
achieve by some future date. In contrast, a mission (i.e., a purpose) is the reason you exist (or an
organization exists). Your mission, or purpose, is what drives you. A strategy reflects the chosen
method(s) and technique(s) to get you to the end goal (the vision). You can think of a vision as
being your destination, a mission (i.e., purpose) as your vehicle (what drives you!), and a strategy
is the road you take to get there. Being aware of these key pieces as well as how they work
together can help you stay motivated and adjust course as needed. By keeping your end goal in
mind, you will be more motivated and driven as you travel the road there.
LO: 1, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, Reflective Thinking, AICPA BC: N/A, AICPA AC: Reporting, AICPA PC:
Communication, IMA: N/A
2. A SWOT analysis is a survey of a company’s internal Strengths and Weaknesses along with its
external Opportunities and Threats. Companies use this type of analysis to evaluate their position
in the market so they can work to capitalize on their strengths and address their weaknesses in an
effort to take advantage of opportunities in the market while also addressing the threats.
In the process of conducting a SWOT analysis, managers often recognize Porter’s Five Forces
among the company’s strengths, weaknesses, opportunities, and threats. The five forces are
customer power, supplier power, threat of substitute products, threat of new entrants, and industry
rivalry.
Through a formal SWOT analysis or a formal evaluation of Porter’s Five Forces, a company will
have a very thorough understanding of where it is positioned in the market and in the industry,
which can help decision-makers determine the best course forward in order to live the company’s
mission and reach its vision.
LO: 1, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, AICPA BC: Strategic Perspective, AICPA AC: Reporting, AICPA PC:
Communication, IMA: Strategy, Planning, & Performance: Enterprise Risk Management
3. A balanced scorecard is a performance management tool in which managers can
comprehensively evaluate their organization’s performance. Within the balanced scorecard, four
traditional perspectives are often used (described below). Within each perspective, the company
recognizes its key objectives, key initiatives for each objective, and specific metrics for each
objective, using both financial and non-financial metrics—hence the term “balanced” scorecard.
Targets are specified for each objective, and at the end of the month/quarter/year, managers can
compare actual results against the company’s stated objectives and targets. A balanced scorecard
can be implemented for the entire entity, for sub-units, and/or for individuals.
The four perspectives of a traditional balanced scorecard include:
o Financial perspective—considers the shareholder’s perspective and how metrics like
growth, profit, and risk that impact shareholder value translate into company objectives.
o Customer perspective—considers the customer and includes the metrics that create value
for the customer, while also often measuring customer satisfaction and retention.
o Internal business process perspective—considers processes internal to a company that are
responsible for creating value for the customer and shareholder.
o Learning and growth perspective—considers how an organization supports its people and
infrastructure to drive and maintain new products and service development and growth.
The objectives within each of the four perspectives should be linked such that improvement in
more foundational areas of the scorecard, such as learning and growth or internal business
process perspectives, will lead to expected improvement in customer and financial areas, as well.
1-3
© 2022 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 1e, Job Costing Visualized (For Instructor Use Only)
,LO: 1, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, AICPA BC: Strategic Perspective, Process and Resource Management
Perspectives, AICPA AC: Reporting, Systems and Process Management, AICPA PC: Communication, IMA: Business Acumen & Operations: Quality Management
and Continuous Improvement
Questions Chapter 1 (Continued)
4. Health goals are linked to friends/family goals, suggesting that once a basic level of health is
achieved, one can pursue healthy relationships with family and friends. Friends/family goals are
then linked to self-enrichment goals, suggesting once one has healthy relationships with
friends/family, one can pursue self-enrichment goals. Self-enrichment goals are then linked to
career goals, suggesting that once one has self-enrichment in his or her life, he or she can pursue
career goals. The lower levels are considered more foundational, allowing a person to
progressively pursue higher-level goals.
Responses here will likely vary by student.
A student’s response to the order of the proposed scorecard might be to move the career
perspective a bit lower in the list, with self-enrichment at the top, as an ultimate goal. Others may
put certain social or environmental goals at the very top of their scorecard, suggesting the ultimate
reward would be contributing to world peace, for example.
LO: 1, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Communication, Reflective Thinking, AICPA BC: N/A, AICPA AC: Reporting, AICPA PC: Communication,
IMA: N/A
5. Cost accounting and financial accounting differ in their purpose, scope, and reporting as follows:
Cost accounting’s purpose is to support internal decision-making.
Financial accounting’s purpose is to present financial information to external users and decision-
makers, who might be investors, stock analysts, regulators, lenders, suppliers, competitors,
customers, or others.
Cost accounting’s scope is far broader than simply costing products. Cost accountants analyze
activities and transactions of every aspect of an organization’s value chain, from inception of idea
through to sales and customer service.
Cost accounting’s reporting is unlimited, as reports can be arranged and presented in any
reasonable way that supports managers’ needs. Managers’ feedback further modifies the type of
reports created.
Financial accounting’s scope and reporting includes the details, format, and content required by
GAAP or IFRS.
LO: 2, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, AICPA BC: N/A, AICPA AC: Reporting, AICPA PC: Communication, IMA: N/A
1-4
© 2022 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 1e, Job Costing Visualized (For Instructor Use Only)
,Questions Chapter 1 (Continued)
6. The main steps of the complete value chain are:
(1) Inception of an idea and its resulting development (R&D)—this is where a company explores
new product and/or service ideas and conducts research on the viability of such an idea.
(2) Design—this is where designers collaborate to find the best possible solution for a new product
idea.
(3) Supply of inputs like direct materials and direct labor—this is where manufacturers procure the
raw materials and labor resources needed in order to produce a given product. This is where
service providers hire laborers to provide the company’s services.
(4) Production—this is where manufacturers actually produce the product, or where service
providers actually provide the service. Much value is added in this key step.
(5) Marketing—this is where organizations of all types provide education to potential customers
about their available products/services, as well as where they make an appeal to customers for
why they need the given product or service.
(6) Distribution—this includes the physical movement of goods to customers, to intermediaries, or
to retail locations.
(7) Customer service—this includes handling post-sale activities, including returns and warranty
support.
While most of these activities work best in this specific order, particularly for manufacturing
companies that would be unable to produce a product without raw materials and labor, it is not set
in stone that they must always be completed in this order. For example, marketing activities may
take place before or during production, and sourcing of raw materials and labor could take place
while designers are fine-tuning the specifications of a product. Also, not all companies participate
in all steps of the value chain. Pure retailers, for example, might not take part in steps 1 and 2.
LO: 2, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, AICPA BC: Process and Resource Management Perspectives, AICPA AC:
Reporting, Systems and Process Management, AICPA PC: Communication, IMA: N/A
7. Some decision-making tools available to cost accountants include:
o Break-even analysis—can help managers determine the volume of units to be sold to
break even or to generate a target amount of income.
o Budgeting—can help managers plan and allocate resources to different priorities across
the organization.
o Net present value—can help managers evaluate the viability of different investment
opportunities.
o Contribution margin—can help managers determine the amount left over from each
different type of unit sold that contributes to fixed costs and operating profit.
o Regression—can help managers evaluate which cost driver/s (independent variable/s) best
explains/predicts a mixed cost (dependent variable).
o Segment margin—can help managers determine the profitability of each division within the
company before common or allocated fixed costs are considered.
o Transfer pricing—can help managers determine the viability of inter-departmental sales,
and if viable, the range within which the transfer price should land.
o Variance analysis—can help managers evaluate differences between standard and actual
prices and/or quantities used for key resources, which can facilitate more targeted
investigation for continuous improvement efforts.
o Data analytics—can help managers gain insights from data available, by generating
descriptive, diagnostic, predictive, and/or prescriptive information.
LO: 2, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, Data Analytics, AICPA BC: Process and Resource Management
Perspectives, AICPA AC: Measurement Analysis and Interpretation, Reporting, AICPA PC: Communication, IMA: Reporting & Control: Cost Accounting
1-5
© 2022 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 1e, Job Costing Visualized (For Instructor Use Only)
,Questions Chapter 1 (Continued)
8. The Sarbanes Oxley Act of 2002 (SOX) has forever changed the accounting profession by
addressing many previous weaknesses in the financial reporting process. While the financial
reporting process is primarily under the purview of financial accountants, there are a few sections
of SOX that are particularly relevant to cost accountants.
Section 302 requires CFOs and CEOs of publicly traded companies to certify the accuracy of
their reported financial information, creating heightened awareness of the significant impacts
that financial information has on a company’s stakeholders. Cost accountants are intimately
involved in, and often directly responsible for, many fundamental business processes reflected
in the company’s financial statements. Specific examples include production and processing
costs, inventory costs, and overhead allocation just to name a few. If cost accountants provide
clear, accurate, and reliable information to their fellow financial accountants, the financial
accountants will feel confident presenting that information to the controller and CFO, in turn,
allowing the CFO and CEO to feel confident signing the financial statements release to external
users.
Section 404 requires management of public companies to recognize their responsibility for
establishing internal controls. Further, they are required to provide an assessment of the
effectiveness of those internal controls in their external reporting, as well. Since cost
accountants are often intimately involved in many fundamental business processes that support
transactional reporting and information sharing, cost accountants are often important
participants in these internal control discussions.
Section 406 requires public companies to disclose if they adopted a code of ethics for their
senior officers. Espousing an ethical climate throughout the organization is a key tenet of cost
accounting, thus making this section of SOX relevant to cost accountants, as well.
LO: 3, Bloom: C, Difficulty: Simple, Time: 5-10, AACSB: Knowledge, Communication, AICPA BC: Governance Perspective, AICPA AC: Reporting, AICPA PC:
Professional Behavior, Communication, IMA: Professional Ethics & Values: Legal and Regulatory Requirements
9. The IMA’s key activities areas as it guides the profession include:
o Serving as a thought leader in research and industry best practices.
o Issuing Statements on Management Accounting (SMAs)—publications on best practices
within management accounting.
o Offering the Certified Management Accounting (CMA) credential, which reflects best-in-
class competencies related to organizations’ internal financial management.
o Helping members build a professional network.
o Creating and offering CPE-eligible education programs that help its members improve their
industry knowledge and leadership potential.
o Advocating for the profession, even in a challenging regulatory environment.
The IMA’s mission is to provide a forum for research, practice development, education,
knowledge sharing, and advocacy of the highest ethical and best business practices in
management accounting and finance. Each of the above key activities helps the IMA achieve one
or more of the different facets of its mission.
LO: 3, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, AICPA BC: Governance Perspective, AICPA AC: Reporting, AICPA PC:
Communication, IMA: Business Acumen & Operations: Industry-Specific Knowledge
1-6
© 2022 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 1e, Job Costing Visualized (For Instructor Use Only)
,Questions Chapter 1 (Continued)
10. The AICPA guides the profession through the following key activities:
o Advocacy—protecting and promoting the profession’s best interests as the national
representative of CPAs before government, regulatory bodies, and other organizations.
o Certification and licensing—setting forth the highest possible level of uniform certification
and licensing standards and promoting and protecting the CPA designation.
o Communications—promoting public awareness of and confidence in the integrity,
objectivity, competence, and professionalism of CPAs.
o Recruitment and education—encouraging individuals to become CPAs and supporting
academic programs that support this effort.
o Standards and performance—establishing professional standards; assisting members in
continually improving their professional conduct, performance, and expertise; and
monitoring its members’ performance to ensure they adhere to current standards and
requirements.
The AICPA’s mission is to power the success of global business, CPAs, Chartered Global
Management Accountants (CGMAs), and specialty credentials by providing the most relevant
knowledge, resources, and advocacy, and by protecting the evolving public interest. All of the
above key activities help the AICPA to achieve its mission along one or more fronts.
LO: 3, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, AICPA BC: Governance Perspective, AICPA AC: Reporting, AICPA PC:
Communication, IMA: Professional Ethics & Values: Legal and Regulatory Requirements
1-7
© 2022 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 1e, Job Costing Visualized (For Instructor Use Only)
, Questions Chapter 1 (Continued)
11. IMA’s Statement of Ethical Professional Practice includes overarching ethical principles along with
specific standards:
Principles: Honesty, Fairness, Objectivity, and Responsibility.
Standards: Competence, Confidentiality, Integrity, and Credibility.
The AICPA Code of Professional Conduct reflects the AICPA’s basic expectations of ethical and
professional conduct. This code expresses the profession’s recognition of its responsibilities to the
public, to clients, and to colleagues through the following principles (some additional context is
provided here for each principle, per the AICPA Code of Professional Conduct, itself):
o Responsibilities principle—members should exercise sensitive professional and moral
judgments in all their activities.
o Public interest principle—members should accept the obligation to act in a way that will
serve the public interest, honor the public trust, and demonstrate a commitment to
professionalism.
o Integrity principle—to maintain and broaden public confidence, members should perform all
professional responsibilities with the highest sense of integrity.
o Objectivity and independence principle—members should maintain objectivity and be free
of conflicts of interest in discharging professional responsibilities; members in public
practice should be independent in fact and appearance when providing auditing and other
attestation services.
o Due care principle—members should observe the profession’s technical and ethical
standards, strive continually to improve competence and the quality of services, and
discharge professional responsibility to the best of their ability.
o Scope and nature of services principle—members in public practice should observe the
principles of the Code of Professional Conduct in determining the scope and nature of
services to be provided.
Both the IMA and the AICPA explicitly recognize objectivity, responsibility, and integrity within their
key principles or standards.
The other principles or standards are unique to each organization, although a few of them have
similar underlying tones, such as:
IMA principle or standard AICPA principle
Competence Due care
Confidentiality Public interest
Credibility Public interest
LO: 3, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, Ethics, AICPA BC: Governance Perspective, AICPA AC: Reporting, AICPA
PC: Ethical Conduct, Communication, IMA: Professional Ethics & Values: Professional Ethical Behavior
1-8
© 2022 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 1e, Job Costing Visualized (For Instructor Use Only)
Farmer
Hello all ,
We have all what you need with best price
Our email :
Our website :
testbanks-store.com
, Chapter 1
Cost Accounting Has Purpose
Note: the end of chapter brief exercises, exercises, and problems are coded K (knowledge), C
(comprehension), AP (application), AN (analysis), S (synthesize), and E (evaluation) according
to the original Blooms Taxonomy published in 1956.
Assignment Classification Table (By Learning Objective)
Brief
Learning Objectives Questions Exercises Exercises Problems
1. Explore the elements that 1, 2, 3, 4 1, 2, 3, 4, 5, 1, 2, 3 1, 2, 3, 4
support a company’s purpose, 6
as well as your own.
2. Connect the purpose of cost 5, 6, 7 7, 8, 9 4, 5, 6 5, 6
accounting with the role of
accountants in organizations.
3. Outline the frameworks, 8, 9, 10, 11, 10, 11, 12 7, 8, 9, 7, 8, 9
including ethics, that guide the 12 10
profession.
1-1
© 2022 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 1e, Job Costing Visualized (For Instructor Use Only)
,Assignment Characteristics Table
Level of Time
Item Description Difficulty (minutes)
E1.1 Get to know the mission and vision of each of the Big 4 Moderate 10–15
firms and their underlying values.
E1.2 Evaluate the state of competition within an industry Moderate 10–15
given a company’s SWOT analysis.
E1.3 Explain how a balanced scorecard reveals a company’s Moderate 10–15
strategy.
E1.4 Get to know how cost accounting skill sets are valued as Moderate 10–15
consulting services in the Big 4.
E1.5 Use the decision-making framework to make a personal Moderate 10–15
decision.
E1.6 Use the decision-making framework to make a business Simple 10–15
decision.
E1.7 Get to know the IMA. Simple 5–10
E1.8 Get to know the continuing education requirements for Moderate 10–15
IMA’s flagship certification.
E1.9 Get to know IMA’s Statement of Ethical Professional Moderate 15–20
Practice.
E1.10 Get to know the AICPA.
Simple 5–10
P1.1 What is your own personal purpose? Simple 5–10
P1.2 What are your goals in this course? Simple 5–10
P1.3 What strategies will you use to achieve your course Simple 10–15
goals?
P1.4 Conduct your own personal SWOT analysis related to Moderate 10–15
your role as a student.
P1.5 Determine which data analytics approaches would be Moderate 10–15
useful in addressing a business question.
P1.6 Explain the steps in the value chain. Moderate 5–10
P1.7 Get to know IMA’s Statements on Management Moderate 10–15
Accounting.
P1.8 Get to know the CPE requirements for CPAs in your Moderate 10–15
state.
P1.9 Get to know how NASBA supports the State Boards of
Accountancy.
Moderate 15–20
Case Sort out the issues in an ethical dilemma using IMA’s Moderate 10–15
Statement of Ethical Professional Practice alongside the
decision-making framework.
1-2
© 2022 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 1e, Job Costing Visualized (For Instructor Use Only)
,Answers to Questions
1. A vision reflects what you strive to be (or what an organization strives to be) or what you strive to
achieve by some future date. In contrast, a mission (i.e., a purpose) is the reason you exist (or an
organization exists). Your mission, or purpose, is what drives you. A strategy reflects the chosen
method(s) and technique(s) to get you to the end goal (the vision). You can think of a vision as
being your destination, a mission (i.e., purpose) as your vehicle (what drives you!), and a strategy
is the road you take to get there. Being aware of these key pieces as well as how they work
together can help you stay motivated and adjust course as needed. By keeping your end goal in
mind, you will be more motivated and driven as you travel the road there.
LO: 1, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, Reflective Thinking, AICPA BC: N/A, AICPA AC: Reporting, AICPA PC:
Communication, IMA: N/A
2. A SWOT analysis is a survey of a company’s internal Strengths and Weaknesses along with its
external Opportunities and Threats. Companies use this type of analysis to evaluate their position
in the market so they can work to capitalize on their strengths and address their weaknesses in an
effort to take advantage of opportunities in the market while also addressing the threats.
In the process of conducting a SWOT analysis, managers often recognize Porter’s Five Forces
among the company’s strengths, weaknesses, opportunities, and threats. The five forces are
customer power, supplier power, threat of substitute products, threat of new entrants, and industry
rivalry.
Through a formal SWOT analysis or a formal evaluation of Porter’s Five Forces, a company will
have a very thorough understanding of where it is positioned in the market and in the industry,
which can help decision-makers determine the best course forward in order to live the company’s
mission and reach its vision.
LO: 1, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, AICPA BC: Strategic Perspective, AICPA AC: Reporting, AICPA PC:
Communication, IMA: Strategy, Planning, & Performance: Enterprise Risk Management
3. A balanced scorecard is a performance management tool in which managers can
comprehensively evaluate their organization’s performance. Within the balanced scorecard, four
traditional perspectives are often used (described below). Within each perspective, the company
recognizes its key objectives, key initiatives for each objective, and specific metrics for each
objective, using both financial and non-financial metrics—hence the term “balanced” scorecard.
Targets are specified for each objective, and at the end of the month/quarter/year, managers can
compare actual results against the company’s stated objectives and targets. A balanced scorecard
can be implemented for the entire entity, for sub-units, and/or for individuals.
The four perspectives of a traditional balanced scorecard include:
o Financial perspective—considers the shareholder’s perspective and how metrics like
growth, profit, and risk that impact shareholder value translate into company objectives.
o Customer perspective—considers the customer and includes the metrics that create value
for the customer, while also often measuring customer satisfaction and retention.
o Internal business process perspective—considers processes internal to a company that are
responsible for creating value for the customer and shareholder.
o Learning and growth perspective—considers how an organization supports its people and
infrastructure to drive and maintain new products and service development and growth.
The objectives within each of the four perspectives should be linked such that improvement in
more foundational areas of the scorecard, such as learning and growth or internal business
process perspectives, will lead to expected improvement in customer and financial areas, as well.
1-3
© 2022 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 1e, Job Costing Visualized (For Instructor Use Only)
,LO: 1, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, AICPA BC: Strategic Perspective, Process and Resource Management
Perspectives, AICPA AC: Reporting, Systems and Process Management, AICPA PC: Communication, IMA: Business Acumen & Operations: Quality Management
and Continuous Improvement
Questions Chapter 1 (Continued)
4. Health goals are linked to friends/family goals, suggesting that once a basic level of health is
achieved, one can pursue healthy relationships with family and friends. Friends/family goals are
then linked to self-enrichment goals, suggesting once one has healthy relationships with
friends/family, one can pursue self-enrichment goals. Self-enrichment goals are then linked to
career goals, suggesting that once one has self-enrichment in his or her life, he or she can pursue
career goals. The lower levels are considered more foundational, allowing a person to
progressively pursue higher-level goals.
Responses here will likely vary by student.
A student’s response to the order of the proposed scorecard might be to move the career
perspective a bit lower in the list, with self-enrichment at the top, as an ultimate goal. Others may
put certain social or environmental goals at the very top of their scorecard, suggesting the ultimate
reward would be contributing to world peace, for example.
LO: 1, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Communication, Reflective Thinking, AICPA BC: N/A, AICPA AC: Reporting, AICPA PC: Communication,
IMA: N/A
5. Cost accounting and financial accounting differ in their purpose, scope, and reporting as follows:
Cost accounting’s purpose is to support internal decision-making.
Financial accounting’s purpose is to present financial information to external users and decision-
makers, who might be investors, stock analysts, regulators, lenders, suppliers, competitors,
customers, or others.
Cost accounting’s scope is far broader than simply costing products. Cost accountants analyze
activities and transactions of every aspect of an organization’s value chain, from inception of idea
through to sales and customer service.
Cost accounting’s reporting is unlimited, as reports can be arranged and presented in any
reasonable way that supports managers’ needs. Managers’ feedback further modifies the type of
reports created.
Financial accounting’s scope and reporting includes the details, format, and content required by
GAAP or IFRS.
LO: 2, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, AICPA BC: N/A, AICPA AC: Reporting, AICPA PC: Communication, IMA: N/A
1-4
© 2022 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 1e, Job Costing Visualized (For Instructor Use Only)
,Questions Chapter 1 (Continued)
6. The main steps of the complete value chain are:
(1) Inception of an idea and its resulting development (R&D)—this is where a company explores
new product and/or service ideas and conducts research on the viability of such an idea.
(2) Design—this is where designers collaborate to find the best possible solution for a new product
idea.
(3) Supply of inputs like direct materials and direct labor—this is where manufacturers procure the
raw materials and labor resources needed in order to produce a given product. This is where
service providers hire laborers to provide the company’s services.
(4) Production—this is where manufacturers actually produce the product, or where service
providers actually provide the service. Much value is added in this key step.
(5) Marketing—this is where organizations of all types provide education to potential customers
about their available products/services, as well as where they make an appeal to customers for
why they need the given product or service.
(6) Distribution—this includes the physical movement of goods to customers, to intermediaries, or
to retail locations.
(7) Customer service—this includes handling post-sale activities, including returns and warranty
support.
While most of these activities work best in this specific order, particularly for manufacturing
companies that would be unable to produce a product without raw materials and labor, it is not set
in stone that they must always be completed in this order. For example, marketing activities may
take place before or during production, and sourcing of raw materials and labor could take place
while designers are fine-tuning the specifications of a product. Also, not all companies participate
in all steps of the value chain. Pure retailers, for example, might not take part in steps 1 and 2.
LO: 2, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, AICPA BC: Process and Resource Management Perspectives, AICPA AC:
Reporting, Systems and Process Management, AICPA PC: Communication, IMA: N/A
7. Some decision-making tools available to cost accountants include:
o Break-even analysis—can help managers determine the volume of units to be sold to
break even or to generate a target amount of income.
o Budgeting—can help managers plan and allocate resources to different priorities across
the organization.
o Net present value—can help managers evaluate the viability of different investment
opportunities.
o Contribution margin—can help managers determine the amount left over from each
different type of unit sold that contributes to fixed costs and operating profit.
o Regression—can help managers evaluate which cost driver/s (independent variable/s) best
explains/predicts a mixed cost (dependent variable).
o Segment margin—can help managers determine the profitability of each division within the
company before common or allocated fixed costs are considered.
o Transfer pricing—can help managers determine the viability of inter-departmental sales,
and if viable, the range within which the transfer price should land.
o Variance analysis—can help managers evaluate differences between standard and actual
prices and/or quantities used for key resources, which can facilitate more targeted
investigation for continuous improvement efforts.
o Data analytics—can help managers gain insights from data available, by generating
descriptive, diagnostic, predictive, and/or prescriptive information.
LO: 2, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, Data Analytics, AICPA BC: Process and Resource Management
Perspectives, AICPA AC: Measurement Analysis and Interpretation, Reporting, AICPA PC: Communication, IMA: Reporting & Control: Cost Accounting
1-5
© 2022 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 1e, Job Costing Visualized (For Instructor Use Only)
,Questions Chapter 1 (Continued)
8. The Sarbanes Oxley Act of 2002 (SOX) has forever changed the accounting profession by
addressing many previous weaknesses in the financial reporting process. While the financial
reporting process is primarily under the purview of financial accountants, there are a few sections
of SOX that are particularly relevant to cost accountants.
Section 302 requires CFOs and CEOs of publicly traded companies to certify the accuracy of
their reported financial information, creating heightened awareness of the significant impacts
that financial information has on a company’s stakeholders. Cost accountants are intimately
involved in, and often directly responsible for, many fundamental business processes reflected
in the company’s financial statements. Specific examples include production and processing
costs, inventory costs, and overhead allocation just to name a few. If cost accountants provide
clear, accurate, and reliable information to their fellow financial accountants, the financial
accountants will feel confident presenting that information to the controller and CFO, in turn,
allowing the CFO and CEO to feel confident signing the financial statements release to external
users.
Section 404 requires management of public companies to recognize their responsibility for
establishing internal controls. Further, they are required to provide an assessment of the
effectiveness of those internal controls in their external reporting, as well. Since cost
accountants are often intimately involved in many fundamental business processes that support
transactional reporting and information sharing, cost accountants are often important
participants in these internal control discussions.
Section 406 requires public companies to disclose if they adopted a code of ethics for their
senior officers. Espousing an ethical climate throughout the organization is a key tenet of cost
accounting, thus making this section of SOX relevant to cost accountants, as well.
LO: 3, Bloom: C, Difficulty: Simple, Time: 5-10, AACSB: Knowledge, Communication, AICPA BC: Governance Perspective, AICPA AC: Reporting, AICPA PC:
Professional Behavior, Communication, IMA: Professional Ethics & Values: Legal and Regulatory Requirements
9. The IMA’s key activities areas as it guides the profession include:
o Serving as a thought leader in research and industry best practices.
o Issuing Statements on Management Accounting (SMAs)—publications on best practices
within management accounting.
o Offering the Certified Management Accounting (CMA) credential, which reflects best-in-
class competencies related to organizations’ internal financial management.
o Helping members build a professional network.
o Creating and offering CPE-eligible education programs that help its members improve their
industry knowledge and leadership potential.
o Advocating for the profession, even in a challenging regulatory environment.
The IMA’s mission is to provide a forum for research, practice development, education,
knowledge sharing, and advocacy of the highest ethical and best business practices in
management accounting and finance. Each of the above key activities helps the IMA achieve one
or more of the different facets of its mission.
LO: 3, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, AICPA BC: Governance Perspective, AICPA AC: Reporting, AICPA PC:
Communication, IMA: Business Acumen & Operations: Industry-Specific Knowledge
1-6
© 2022 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 1e, Job Costing Visualized (For Instructor Use Only)
,Questions Chapter 1 (Continued)
10. The AICPA guides the profession through the following key activities:
o Advocacy—protecting and promoting the profession’s best interests as the national
representative of CPAs before government, regulatory bodies, and other organizations.
o Certification and licensing—setting forth the highest possible level of uniform certification
and licensing standards and promoting and protecting the CPA designation.
o Communications—promoting public awareness of and confidence in the integrity,
objectivity, competence, and professionalism of CPAs.
o Recruitment and education—encouraging individuals to become CPAs and supporting
academic programs that support this effort.
o Standards and performance—establishing professional standards; assisting members in
continually improving their professional conduct, performance, and expertise; and
monitoring its members’ performance to ensure they adhere to current standards and
requirements.
The AICPA’s mission is to power the success of global business, CPAs, Chartered Global
Management Accountants (CGMAs), and specialty credentials by providing the most relevant
knowledge, resources, and advocacy, and by protecting the evolving public interest. All of the
above key activities help the AICPA to achieve its mission along one or more fronts.
LO: 3, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, AICPA BC: Governance Perspective, AICPA AC: Reporting, AICPA PC:
Communication, IMA: Professional Ethics & Values: Legal and Regulatory Requirements
1-7
© 2022 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 1e, Job Costing Visualized (For Instructor Use Only)
, Questions Chapter 1 (Continued)
11. IMA’s Statement of Ethical Professional Practice includes overarching ethical principles along with
specific standards:
Principles: Honesty, Fairness, Objectivity, and Responsibility.
Standards: Competence, Confidentiality, Integrity, and Credibility.
The AICPA Code of Professional Conduct reflects the AICPA’s basic expectations of ethical and
professional conduct. This code expresses the profession’s recognition of its responsibilities to the
public, to clients, and to colleagues through the following principles (some additional context is
provided here for each principle, per the AICPA Code of Professional Conduct, itself):
o Responsibilities principle—members should exercise sensitive professional and moral
judgments in all their activities.
o Public interest principle—members should accept the obligation to act in a way that will
serve the public interest, honor the public trust, and demonstrate a commitment to
professionalism.
o Integrity principle—to maintain and broaden public confidence, members should perform all
professional responsibilities with the highest sense of integrity.
o Objectivity and independence principle—members should maintain objectivity and be free
of conflicts of interest in discharging professional responsibilities; members in public
practice should be independent in fact and appearance when providing auditing and other
attestation services.
o Due care principle—members should observe the profession’s technical and ethical
standards, strive continually to improve competence and the quality of services, and
discharge professional responsibility to the best of their ability.
o Scope and nature of services principle—members in public practice should observe the
principles of the Code of Professional Conduct in determining the scope and nature of
services to be provided.
Both the IMA and the AICPA explicitly recognize objectivity, responsibility, and integrity within their
key principles or standards.
The other principles or standards are unique to each organization, although a few of them have
similar underlying tones, such as:
IMA principle or standard AICPA principle
Competence Due care
Confidentiality Public interest
Credibility Public interest
LO: 3, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, Ethics, AICPA BC: Governance Perspective, AICPA AC: Reporting, AICPA
PC: Ethical Conduct, Communication, IMA: Professional Ethics & Values: Professional Ethical Behavior
1-8
© 2022 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 1e, Job Costing Visualized (For Instructor Use Only)
