https://www.stuvia.com/user/nursecare
Accounting for Decision Making and Control, 9e Jerold L.
Zimmerman (Solutions Manual All Chapters, 100% Original
Verified, A+ Grade)
SOLUTIONS TO PROBLEMS AND CASES
CHAPTER 1
INTRODUCTION
P 1–1: Solution to MBA Students (10 minutes)
[Using accounting information for decision making and control]
Together the two observations highlight the extremes in the trade-
offs of using accounting information for decision and control. In the first
case, there is more analysis of opportunity costs that are hard to capture
with typical accounting information. In the second case, there is less
intended interest in opportunity cost and greater emphasis on control.
P 1–2: Solution to One Cost System Isn't Enough
(15 minutes) [Economic Darwinism]
The first part of the quote describes the tension (and conflict) that
arises when a single accounting system is used for multiple purposes. This
part of the statement is an accurate description of practice. However, the
quote has a couple of problems, including:
•While the quote describes the costs of using a single system ("a
single system ... can't perform important managerial functions adequately"),
the quote does not describe the benefits derived from using a single system
(lower bookkeeping costs, a single audit, less confusion).
•Because the quote ignores the benefits of a single system, it ignores
the concept of economic Darwinism. It does not address the question of
how surviving (successful) companies can compete if a single system "can't
perform important managerial functions adequately."
•Also, the quote assumes that managers are bound to their internal
https://www.stuvia.com/user/nursecare
,https://www.stuvia.com/user/nursecare
accounting systems, that no other alternative information sources are
available. Often managers develop their own ad hoc, "off-line" information
systems for decision making. These systems include spreadsheets, informal
observation, and "walking around."
P 1–3: Solution to U.S. and Japanese Tax Laws (15
minutes) [Influence of conflicting demands on
cost systems]
The internal accounting system supports multiple uses, including
financial reporting, taxes, contracting (debt and management
compensation), internal decision making, and internal control. Because
multiple purposes are served, trade-offs must be made among the
competing demands. When more emphasis is placed on one purpose
(taxes), less consideration can be given to other uses (internal decision
making and
https://www.stuvia.com/user/nursecare
,https://www.stuvia.com/user/nursecare
control). By linking taxes to external reporting, Japanese firms’ financial
reports will be based on accounting procedures that give more weight to
tax considerations. In the U.S., companies can keep two sets of books, one
for taxes and the other for financial reporting. Thus, in the U.S., there is
more of a decoupling of taxes and everything else. Except for the
additional bookkeeping costs of producing the two separate sets of reports,
tax considerations are predicted to have less influence on the choice of
internal (and thus external) accounting procedures in the U.S. than in
Japan.
The question is raised as to why firms use the same accounting
procedures for internal reports as they do for external reports. Or for that
matter, why do tax laws and external financial reporting considerations
have any effect on internal accounting procedures? Why don’t firms
maintain multiple sets of accounts, one for each purpose (e.g., financial
reporting, internal decision making, and internal control)? Clearly there
are additional bookkeeping costs for maintaining multiple sets of accounts.
But also, there are confusion costs and, in many instances, firms explicitly
link senior executive compensation to externally reported financial
statements. Such explicit linkage of executive pay to externally reported
net income presumably exists to control agency costs between management
and shareholders. Once senior management performance and rewards are
linked to external reports, the internal reporting system will become linked
to the external reports and basically less consideration will be given to
choosing accounting procedures that aid in internal decision making and
internal control.
In Japan, the firm’s accounting systems are less likely to be used for
internal uses (decision making and control) than in the U.S. Because they
cannot rely as much on their accounting systems for internal uses (because
more weight is placed on using accounting procedures to reduce taxes),
Japanese managers are more likely to use non-accounting-based systems
for internal decision making and control.
P 1-4: Solution to Using Accounting for Planning
(15 minutes) [Usefulness of historical costs]
a. Historical costs are of limited use in making planning decisions in a
rapidly changing environment. With changing products, processes
https://www.stuvia.com/user/nursecare
, https://www.stuvia.com/user/nursecare
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.
https://www.stuvia.com/user/nursecare
Accounting for Decision Making and Control, 9e Jerold L.
Zimmerman (Solutions Manual All Chapters, 100% Original
Verified, A+ Grade)
SOLUTIONS TO PROBLEMS AND CASES
CHAPTER 1
INTRODUCTION
P 1–1: Solution to MBA Students (10 minutes)
[Using accounting information for decision making and control]
Together the two observations highlight the extremes in the trade-
offs of using accounting information for decision and control. In the first
case, there is more analysis of opportunity costs that are hard to capture
with typical accounting information. In the second case, there is less
intended interest in opportunity cost and greater emphasis on control.
P 1–2: Solution to One Cost System Isn't Enough
(15 minutes) [Economic Darwinism]
The first part of the quote describes the tension (and conflict) that
arises when a single accounting system is used for multiple purposes. This
part of the statement is an accurate description of practice. However, the
quote has a couple of problems, including:
•While the quote describes the costs of using a single system ("a
single system ... can't perform important managerial functions adequately"),
the quote does not describe the benefits derived from using a single system
(lower bookkeeping costs, a single audit, less confusion).
•Because the quote ignores the benefits of a single system, it ignores
the concept of economic Darwinism. It does not address the question of
how surviving (successful) companies can compete if a single system "can't
perform important managerial functions adequately."
•Also, the quote assumes that managers are bound to their internal
https://www.stuvia.com/user/nursecare
,https://www.stuvia.com/user/nursecare
accounting systems, that no other alternative information sources are
available. Often managers develop their own ad hoc, "off-line" information
systems for decision making. These systems include spreadsheets, informal
observation, and "walking around."
P 1–3: Solution to U.S. and Japanese Tax Laws (15
minutes) [Influence of conflicting demands on
cost systems]
The internal accounting system supports multiple uses, including
financial reporting, taxes, contracting (debt and management
compensation), internal decision making, and internal control. Because
multiple purposes are served, trade-offs must be made among the
competing demands. When more emphasis is placed on one purpose
(taxes), less consideration can be given to other uses (internal decision
making and
https://www.stuvia.com/user/nursecare
,https://www.stuvia.com/user/nursecare
control). By linking taxes to external reporting, Japanese firms’ financial
reports will be based on accounting procedures that give more weight to
tax considerations. In the U.S., companies can keep two sets of books, one
for taxes and the other for financial reporting. Thus, in the U.S., there is
more of a decoupling of taxes and everything else. Except for the
additional bookkeeping costs of producing the two separate sets of reports,
tax considerations are predicted to have less influence on the choice of
internal (and thus external) accounting procedures in the U.S. than in
Japan.
The question is raised as to why firms use the same accounting
procedures for internal reports as they do for external reports. Or for that
matter, why do tax laws and external financial reporting considerations
have any effect on internal accounting procedures? Why don’t firms
maintain multiple sets of accounts, one for each purpose (e.g., financial
reporting, internal decision making, and internal control)? Clearly there
are additional bookkeeping costs for maintaining multiple sets of accounts.
But also, there are confusion costs and, in many instances, firms explicitly
link senior executive compensation to externally reported financial
statements. Such explicit linkage of executive pay to externally reported
net income presumably exists to control agency costs between management
and shareholders. Once senior management performance and rewards are
linked to external reports, the internal reporting system will become linked
to the external reports and basically less consideration will be given to
choosing accounting procedures that aid in internal decision making and
internal control.
In Japan, the firm’s accounting systems are less likely to be used for
internal uses (decision making and control) than in the U.S. Because they
cannot rely as much on their accounting systems for internal uses (because
more weight is placed on using accounting procedures to reduce taxes),
Japanese managers are more likely to use non-accounting-based systems
for internal decision making and control.
P 1-4: Solution to Using Accounting for Planning
(15 minutes) [Usefulness of historical costs]
a. Historical costs are of limited use in making planning decisions in a
rapidly changing environment. With changing products, processes
https://www.stuvia.com/user/nursecare
, https://www.stuvia.com/user/nursecare
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.
https://www.stuvia.com/user/nursecare
