ALL 24 CHAPTERS COVERED
,Alaa Aliasrei فيس @Aliasrei تلكرام عالء محسن شحم
CHAPTER 1
THE MANAGER AND MANAGEMENT ACCOUNTING
See the front matter of this Solutions Manual for suggestions regarding your choices of
assignment material for each chapter.
1-1 Management accounting information is specifically provided for the internal usage of
organizations, and the preparation and presentation of management accounting reports are not
governed by standardized rules and regulation. Management accounting reports have no definite
time frame for preparation. Management accounting reports combine historical data with present
data for the purpose of influencing the future. Thus, it is considered futuristic in nature. The
objective of management accounting is to provide financial information to managers to enable
them to effectuate their planning, control and decision-making responsibilities.
Financial accounting reports focus on providing standardized information to external
users or those that do not have access to detailed private information of the entity. The users of
financial accounting reports comprise existing and potential shareholders; employees–both
within and outside the organization; financial and investment analysts; the government; the
company’s auditor; the public at large to mention a few. The preparation of financial accounting
statements is governed by rules and regulations commonly referred to as generally accepted
accounting principles (GAAP). These reports are usually presented to stakeholders on an annual
basis. Due to the historical nature of financial accounting reports, the degree of estimation and
approximation allowable in the course of writing the report is limited. The objective of financial
accounting reports is firstly to fulfil the doctrine of stewardship in accounting and secondly to
meet the statutory or regulatory requirement. It also provides information primarily to external
decision-makers (even employees might need it for their private decision-making) about
providing resources to the entity.
Note: Financial accounting is regulated in some jurisdictions by the International Financial
Reporting Standard (IFRS) for private firms and the International Public Sector Accounting
Standards (IPSAS) in the government sector. There are also national accounting standards for
preparation of financial information. This therefore implies that management accounting reports
are influenced by guidelines or legislations. For example, IAS 2 outlines how inventories can be
valued, and what production costs should be included in inventory valuation.
1-2 Financial accounting is governed by generally accepted accounting principles (GAAP).
Management accounting does not suffer such restrictions to these principles. The net effect is
that
Management accounting allows managers to charge interest on owners’ capital to help
appraise a division’s performance, whereas such a charge is not permissible under GAAP.
Financial accounting reports must be prepared in accordance with statutory requirements
(Companies Law, IFRS, IPSAS, GAAP, etc.), whereas no such legal requirements are there
for management accounting.
Financial accounting reports focus more on historical information, whereas management
accounting places greater emphasis on reporting future costs and revenues.
Management accounting reports are produced at intervals that are more frequent and are
less accurate as they are based on estimates.
1-1
,Alaa Aliasrei فيس @Aliasrei تلكرام عالء محسن شحم
Management accounting can include assets or liabilities (such as “brand names” developed
internally) not recognized under GAAP.
Management accounting can use asset or liability measurement rules (such as present
values or resale prices) not permitted under GAAP.”
Note: Under the IFRS jurisdictions, the preparation of financial statements must comply with
both the format prescribed by the Standards and further disclosures required. This is not the case
with management accounting.
1-3 Management accounting information helps manager to develop, communicate, and
implement strategies by answering the following questions, which could contribute to an
effective formulation of the strategies:
Who are our most important customers, and what critical capability do we have to be
competitive and deliver value to our customers?
What are the bargaining power of our customers, and our suppliers?
What substitute products exist in the marketplace, and how do they differ from our
products in terms of features, price, cost, and quality?
Will adequate cash be available to fund the strategy, or will additional funds need to be
raised?
1-4 Value chain analysis helps organizations to assess their competitive advantage by
determining the implications of all strategic activities to the organization. Cost accounting
provides the financial analysis of each of the strategic activities. Cost accounting provides the
financial estimates by undertaking the following analysis:
1. Internal cost analysis: this involves estimating the cost of each internal value chain
process, determining the financial implications and viability.
2. Vertical linkage analysis: this cost analysis estimates the sources of differentiation within
internal value-creating processes. Vertical linkages require obtaining information on
operating costs, revenues and assets for each process throughout the industry’s value
chain.
3. Internal differentiation analysis: this analysis requires the estimation of the effect of cost
supplies and other processes within the value chain and the business performance.
1-5 Supply chain describes the flow of goods, services, and information from the initial
sources of materials and services to the delivery of products to consumers, regardless of whether
those activities occur in one organization or in multiple organizations.
Cost management is most effective when it integrates and coordinates activities across all
companies in the supply chain as well as across each business function in an individual
company’s value chain. Attempts are made to restructure all cost areas to be more cost-effective.
1-6 Management accounting is concerned largely with looking at current issues and problems
and the future in terms of decision-making and forecasting. As management accounting outputs
are mainly for internal users, a confidential report is usually produced before the directors of the
company.
1-2
, Alaa Aliasrei فيس @Aliasrei تلكرام عالء محسن شحم
Management accounting enables organizations in the following decision-making
activities: forecasting revenues and costs, planning activities, managing cost, identification of
sources and costs of funding, evaluation of investments, measurement and controlling
performance. Management accounting is therefore involved in managing the scorecard of the
firm.
Management accounting provides forward-looking information to help managers plan
and control operations as they lead the business. This includes managing the company’s plant,
equipment, and human resources.
1-7 Management accountants can help improve quality and achieve timely product deliveries
by recording and reporting an organization’s current quality and timeliness levels and by
analyzing and evaluating the costs and benefits—both financial and nonfinancial—of new
quality initiatives, such as TQM, relieving bottleneck constraints, or providing faster customer
service.
1-8 The five-step decision-making process is (1) identify the problem and uncertainties;
(2) obtain information; (3) make predictions about the future; (4) make decisions by choosing
among alternatives; and (5) implement the decision, evaluate performance, and learn.
1-9 Planning decisions focus on selecting organization goals and strategies, predicting results
under various alternative ways of achieving those goals, deciding how to attain the desired goals,
and communicating the goals and how to attain them to the entire organization.
Control decisions focus on taking actions that implement the planning decisions, deciding
how to evaluate performance, and providing feedback and learning to help future decision
making.
1-10 The three guidelines for management accountants are:
1. Employ a cost-benefit approach.
2. Recognize technical and behavioral considerations.
3. Apply the notion of “different costs for different purposes.”
1-11 Agree. Technical and basic analytical competences are necessary for preparing and
interpreting management accounting reports. However, these competencies are insufficient.
Management accountants are required to know:
a) how to work well in cross-functional teams and be an efficient business partner;
b) how to possess high integrity, and communicate clearly, openly and candidly;
c) how to lead and motivate people to change and be innovative;
d) how to promote fact-based analysis and make tough-minded, critical judgments without
being adversarial.
1-12 The new controller could reply in one or more of the following ways:
a) Explain to the plant manager how he or she could benefit from activities and tasks
performed by accountants and the controller such as ‘reporting and interpreting relevant
data’ and highlight how the controller can influences the behavior of all employees and
helps line managers make better decisions.
1-3
,Alaa Aliasrei فيس @Aliasrei تلكرام عالء محسن شحم
CHAPTER 1
THE MANAGER AND MANAGEMENT ACCOUNTING
See the front matter of this Solutions Manual for suggestions regarding your choices of
assignment material for each chapter.
1-1 Management accounting information is specifically provided for the internal usage of
organizations, and the preparation and presentation of management accounting reports are not
governed by standardized rules and regulation. Management accounting reports have no definite
time frame for preparation. Management accounting reports combine historical data with present
data for the purpose of influencing the future. Thus, it is considered futuristic in nature. The
objective of management accounting is to provide financial information to managers to enable
them to effectuate their planning, control and decision-making responsibilities.
Financial accounting reports focus on providing standardized information to external
users or those that do not have access to detailed private information of the entity. The users of
financial accounting reports comprise existing and potential shareholders; employees–both
within and outside the organization; financial and investment analysts; the government; the
company’s auditor; the public at large to mention a few. The preparation of financial accounting
statements is governed by rules and regulations commonly referred to as generally accepted
accounting principles (GAAP). These reports are usually presented to stakeholders on an annual
basis. Due to the historical nature of financial accounting reports, the degree of estimation and
approximation allowable in the course of writing the report is limited. The objective of financial
accounting reports is firstly to fulfil the doctrine of stewardship in accounting and secondly to
meet the statutory or regulatory requirement. It also provides information primarily to external
decision-makers (even employees might need it for their private decision-making) about
providing resources to the entity.
Note: Financial accounting is regulated in some jurisdictions by the International Financial
Reporting Standard (IFRS) for private firms and the International Public Sector Accounting
Standards (IPSAS) in the government sector. There are also national accounting standards for
preparation of financial information. This therefore implies that management accounting reports
are influenced by guidelines or legislations. For example, IAS 2 outlines how inventories can be
valued, and what production costs should be included in inventory valuation.
1-2 Financial accounting is governed by generally accepted accounting principles (GAAP).
Management accounting does not suffer such restrictions to these principles. The net effect is
that
Management accounting allows managers to charge interest on owners’ capital to help
appraise a division’s performance, whereas such a charge is not permissible under GAAP.
Financial accounting reports must be prepared in accordance with statutory requirements
(Companies Law, IFRS, IPSAS, GAAP, etc.), whereas no such legal requirements are there
for management accounting.
Financial accounting reports focus more on historical information, whereas management
accounting places greater emphasis on reporting future costs and revenues.
Management accounting reports are produced at intervals that are more frequent and are
less accurate as they are based on estimates.
1-1
,Alaa Aliasrei فيس @Aliasrei تلكرام عالء محسن شحم
Management accounting can include assets or liabilities (such as “brand names” developed
internally) not recognized under GAAP.
Management accounting can use asset or liability measurement rules (such as present
values or resale prices) not permitted under GAAP.”
Note: Under the IFRS jurisdictions, the preparation of financial statements must comply with
both the format prescribed by the Standards and further disclosures required. This is not the case
with management accounting.
1-3 Management accounting information helps manager to develop, communicate, and
implement strategies by answering the following questions, which could contribute to an
effective formulation of the strategies:
Who are our most important customers, and what critical capability do we have to be
competitive and deliver value to our customers?
What are the bargaining power of our customers, and our suppliers?
What substitute products exist in the marketplace, and how do they differ from our
products in terms of features, price, cost, and quality?
Will adequate cash be available to fund the strategy, or will additional funds need to be
raised?
1-4 Value chain analysis helps organizations to assess their competitive advantage by
determining the implications of all strategic activities to the organization. Cost accounting
provides the financial analysis of each of the strategic activities. Cost accounting provides the
financial estimates by undertaking the following analysis:
1. Internal cost analysis: this involves estimating the cost of each internal value chain
process, determining the financial implications and viability.
2. Vertical linkage analysis: this cost analysis estimates the sources of differentiation within
internal value-creating processes. Vertical linkages require obtaining information on
operating costs, revenues and assets for each process throughout the industry’s value
chain.
3. Internal differentiation analysis: this analysis requires the estimation of the effect of cost
supplies and other processes within the value chain and the business performance.
1-5 Supply chain describes the flow of goods, services, and information from the initial
sources of materials and services to the delivery of products to consumers, regardless of whether
those activities occur in one organization or in multiple organizations.
Cost management is most effective when it integrates and coordinates activities across all
companies in the supply chain as well as across each business function in an individual
company’s value chain. Attempts are made to restructure all cost areas to be more cost-effective.
1-6 Management accounting is concerned largely with looking at current issues and problems
and the future in terms of decision-making and forecasting. As management accounting outputs
are mainly for internal users, a confidential report is usually produced before the directors of the
company.
1-2
, Alaa Aliasrei فيس @Aliasrei تلكرام عالء محسن شحم
Management accounting enables organizations in the following decision-making
activities: forecasting revenues and costs, planning activities, managing cost, identification of
sources and costs of funding, evaluation of investments, measurement and controlling
performance. Management accounting is therefore involved in managing the scorecard of the
firm.
Management accounting provides forward-looking information to help managers plan
and control operations as they lead the business. This includes managing the company’s plant,
equipment, and human resources.
1-7 Management accountants can help improve quality and achieve timely product deliveries
by recording and reporting an organization’s current quality and timeliness levels and by
analyzing and evaluating the costs and benefits—both financial and nonfinancial—of new
quality initiatives, such as TQM, relieving bottleneck constraints, or providing faster customer
service.
1-8 The five-step decision-making process is (1) identify the problem and uncertainties;
(2) obtain information; (3) make predictions about the future; (4) make decisions by choosing
among alternatives; and (5) implement the decision, evaluate performance, and learn.
1-9 Planning decisions focus on selecting organization goals and strategies, predicting results
under various alternative ways of achieving those goals, deciding how to attain the desired goals,
and communicating the goals and how to attain them to the entire organization.
Control decisions focus on taking actions that implement the planning decisions, deciding
how to evaluate performance, and providing feedback and learning to help future decision
making.
1-10 The three guidelines for management accountants are:
1. Employ a cost-benefit approach.
2. Recognize technical and behavioral considerations.
3. Apply the notion of “different costs for different purposes.”
1-11 Agree. Technical and basic analytical competences are necessary for preparing and
interpreting management accounting reports. However, these competencies are insufficient.
Management accountants are required to know:
a) how to work well in cross-functional teams and be an efficient business partner;
b) how to possess high integrity, and communicate clearly, openly and candidly;
c) how to lead and motivate people to change and be innovative;
d) how to promote fact-based analysis and make tough-minded, critical judgments without
being adversarial.
1-12 The new controller could reply in one or more of the following ways:
a) Explain to the plant manager how he or she could benefit from activities and tasks
performed by accountants and the controller such as ‘reporting and interpreting relevant
data’ and highlight how the controller can influences the behavior of all employees and
helps line managers make better decisions.
1-3
