SOLUTION MANUAL FOR
Fundamentals Of Cost Accounting ̣ 7th Edition William
Lanen
1
Cost Accounting:̣ Information for Decision
Making ̣
Solutions to Review Questions
1-1.
Among ̣ the goals
̣ of an organization,
̣ a central one is to create and increase value. Cost
accounting ̣ systems are designed ̣ to provide information to decision makers in the
organization
̣ with the information they need to accomplish this goal.
̣ Therefore, the
designers
̣ of the cost accounting ̣ system need to understand how value is created in the
organization
̣ to desigṇ systems for their organization.
̣
1-2.
Financial accounting ̣ is designed
̣ to provide information about the firm to external users.
External users include investors, creditors, government
̣ authorities, regulators,
̣
customers, competitors, suppliers, labor unions, and so on. Cost accounting ̣ systems
are designed
̣ to provide information to internal users (managers).
̣
This difference is important, because it affects the design ̣ of the systems. Financial
accounting ̣ systems are based on standards or rules. This allows the user to compare
the results of different firms. Managerial
̣ accounting ̣ systems do not require rules. Each
firm is free to develop managerial
̣ accounting ̣ systems that best serve the needs of the
decision makers (managers). ̣
1-3.
B Providing ̣ cost information for financial reporting ̣
A Identifying ̣ the best store in a chain
Solutions Manual, Chapter 4 1
© McGraw Hill LLC. All rights
̣ reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
,C Determining ̣ which plant to use for production
1-4.
The value chain is the set of activities that transforms raw resources into the goods
̣ and
services end users purchase and consume. The supply chain includes the set of firms
and individuals that sells goods
̣ and services to the firm. The distribution chain is the set
of firms and individuals that buys and distributes goods
̣ and services from the firm.
1-5.
The customers of cost accounting ̣ are managers,
̣ from plant managers
̣ to the CEO.
1-6.
Value-added activities are activities that customers perceive as adding ̣ utility to the
goods
̣ or services they purchase. Nonvalue-added activities do not add value to the
goods
̣ or services. By classifying ̣ costs this way, the cost accounting ̣ system can help
the manager ̣ identify areas (processes) that can be improved, lowering ̣ costs and
adding ̣ value to the organization.
̣
1-7.
Answers will vary, but should include some of the following:̣
Title Major Responsibilities and Major Duties
Chief financial officer (CFO) .... •Manages
̣ entire finance and accounting ̣ function
Treasurer ................................. •Manageṣ liquid assets
•Conducts business with banks and other
financial institutions
•Oversees public issues of stock and debt
Controller ................................. •Plans and designs
̣ information and incentive
systems
Internal auditor ........................ •Ensures compliance with laws, regulations,
̣ and
company policies and procedures
•Provides consulting ̣ and auditing ̣ services within
the firm
Cost accountant ...................... •Records, measures, estimates, and analyzes
costs
•Works with financial and operational manager
̣ to
2 Fundamentals of Cost Accounting,̣ 7e
© McGraw Hill LLC. All rights
̣ reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
, provide relevant information for decisions
1-8.
The four questions of the critical thinking ̣ framework are:
1.What are the relevant questions (what decisions do I need to make)?
2.What are the data relevant to the analysis and where do I find them?
3.What are the appropriate tools for analyzing ̣ data?
4.How can I effectively and persuasively communicate the results of my analysis?
1-9.
No. Sarbanes-Oxley is a law and violations of it are legaḷ issues. Codes of ethics are
necessary to help accountants and managers ̣ identify situations that might
̣ develop into
ethical conflicts, understand what they could do in these situations, and to learn what to
do when they believe that an ethical violation has occurred.
Solutions to Critical Analysis and Discussion Questions
1-10.
The role of cost accountants is to help manage ̣ the organization.
̣ Part of that role is to
report results. Another part is to design
̣ systems that assist other managerṣ in making ̣
decisions to improve performance. This role requires that accountants understand how
value is created in their organizations.
̣ Identifying ̣ and reporting ̣ how the decisions
managerṣ make affect value creation lead to better decisions.
1-11.
Yes, you should be interested in the efficiency of your customers. The consumer (the
customer of the retailers) is interested in receiving ̣ the most value. If one of the links in
the supply chain is inefficient, the customer may choose to buy from a different retailer
(who might
̣ use a different wholesaler).
1-12.
Costs that you could ask to be reimbursed might ̣ include the fuel, a share of the
maintenance costs, ―wear and tear,‖ or depreciation, and insurance. To avoid
disagreements,
̣ it would be necessary to negotiate
̣ an agreement
̣ (even if only
informally) between you and your friend considering ̣ all factors. For example, you might ̣
agree
̣ that she should pay for the g as
̣ and any other supplies (e.g.,
̣ oil) needed on the
trip.
Solutions Manual, Chapter 4 3
© McGraw Hill LLC. All rights
̣ reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
, If you are going
̣ ̣ along,̣ you might
̣ change
̣ the agreement
̣ so that you split these costs.
Alternatively, you mighṭ say that because you are going
̣ ̣ anyway, she can ride along ̣ for
nothing.̣
1-13.
Cost accounting ̣ provides important information to those who determine strategy.̣ If the
cost accounting ̣ system provides inaccurate information, the organization
̣ may end up
with an unintended strategy,̣ because managerṣ are making ̣ decisions based on faulty
information.
1-14.
Executive performance evaluation systems are designed ̣ for a specific company‘s
needs. The systems should be flexible to adapt to the circumstances that exist in that
company. A common set of accounting ̣ principles would tend to reduce flexibility and
usefulness of these systems. If all parties know the accounting ̣ basis used by the
system, the exact rules can be designed
̣ in whatever manner the parties deem
appropriate.
1-15.
Although ̣ not-for-profit organizations
̣ are not seeking ̣ to make a profit, they must remain
financially viable to accomplish their missions. Cost accounting ̣ information can help
managerṣ of not-for-profit organizations
̣ by highlig
̣ hting
̣ ̣ the costs of various activities,
identifying ̣ sources of revenue, and measuring ̣ performance of managers. ̣ In terms of
organizational
̣ survival, cost accounting ̣ information can be just as (or more) important
for a not-for-profit as for a for-profit firm.
1-16.
Both Goodyear and Pep Boys needs to determine the cost of tire to determine cost of
goods
̣ sold on the income statement and inventory amounts on the balance sheet.
Perhaps the bigg̣ est
̣ difference is that for a retailer, such as Pep Boys, the cost of a tire
is what was paid to the supplier (Goodyear) for the tire. For Goodyear, the problem is not
quite as simple. Goodyear does not buy a tire. It buys materials (rubber, for example)
and labor and combines them in a manufacturing ̣ plant. These resources cost money
and Goodyear needs to determine what resources went into the tires.
A second, though ̣ perhaps less important, difference is that Goodyear may have some
tires that have been started in the production process but have not been completed
when the fiscal year ends. As a result, Goodyear also needs to determine the value of
this incomplete work, the work in process.
4 Fundamentals of Cost Accounting,̣ 7e
© McGraw Hill LLC. All rights
̣ reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
Fundamentals Of Cost Accounting ̣ 7th Edition William
Lanen
1
Cost Accounting:̣ Information for Decision
Making ̣
Solutions to Review Questions
1-1.
Among ̣ the goals
̣ of an organization,
̣ a central one is to create and increase value. Cost
accounting ̣ systems are designed ̣ to provide information to decision makers in the
organization
̣ with the information they need to accomplish this goal.
̣ Therefore, the
designers
̣ of the cost accounting ̣ system need to understand how value is created in the
organization
̣ to desigṇ systems for their organization.
̣
1-2.
Financial accounting ̣ is designed
̣ to provide information about the firm to external users.
External users include investors, creditors, government
̣ authorities, regulators,
̣
customers, competitors, suppliers, labor unions, and so on. Cost accounting ̣ systems
are designed
̣ to provide information to internal users (managers).
̣
This difference is important, because it affects the design ̣ of the systems. Financial
accounting ̣ systems are based on standards or rules. This allows the user to compare
the results of different firms. Managerial
̣ accounting ̣ systems do not require rules. Each
firm is free to develop managerial
̣ accounting ̣ systems that best serve the needs of the
decision makers (managers). ̣
1-3.
B Providing ̣ cost information for financial reporting ̣
A Identifying ̣ the best store in a chain
Solutions Manual, Chapter 4 1
© McGraw Hill LLC. All rights
̣ reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
,C Determining ̣ which plant to use for production
1-4.
The value chain is the set of activities that transforms raw resources into the goods
̣ and
services end users purchase and consume. The supply chain includes the set of firms
and individuals that sells goods
̣ and services to the firm. The distribution chain is the set
of firms and individuals that buys and distributes goods
̣ and services from the firm.
1-5.
The customers of cost accounting ̣ are managers,
̣ from plant managers
̣ to the CEO.
1-6.
Value-added activities are activities that customers perceive as adding ̣ utility to the
goods
̣ or services they purchase. Nonvalue-added activities do not add value to the
goods
̣ or services. By classifying ̣ costs this way, the cost accounting ̣ system can help
the manager ̣ identify areas (processes) that can be improved, lowering ̣ costs and
adding ̣ value to the organization.
̣
1-7.
Answers will vary, but should include some of the following:̣
Title Major Responsibilities and Major Duties
Chief financial officer (CFO) .... •Manages
̣ entire finance and accounting ̣ function
Treasurer ................................. •Manageṣ liquid assets
•Conducts business with banks and other
financial institutions
•Oversees public issues of stock and debt
Controller ................................. •Plans and designs
̣ information and incentive
systems
Internal auditor ........................ •Ensures compliance with laws, regulations,
̣ and
company policies and procedures
•Provides consulting ̣ and auditing ̣ services within
the firm
Cost accountant ...................... •Records, measures, estimates, and analyzes
costs
•Works with financial and operational manager
̣ to
2 Fundamentals of Cost Accounting,̣ 7e
© McGraw Hill LLC. All rights
̣ reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
, provide relevant information for decisions
1-8.
The four questions of the critical thinking ̣ framework are:
1.What are the relevant questions (what decisions do I need to make)?
2.What are the data relevant to the analysis and where do I find them?
3.What are the appropriate tools for analyzing ̣ data?
4.How can I effectively and persuasively communicate the results of my analysis?
1-9.
No. Sarbanes-Oxley is a law and violations of it are legaḷ issues. Codes of ethics are
necessary to help accountants and managers ̣ identify situations that might
̣ develop into
ethical conflicts, understand what they could do in these situations, and to learn what to
do when they believe that an ethical violation has occurred.
Solutions to Critical Analysis and Discussion Questions
1-10.
The role of cost accountants is to help manage ̣ the organization.
̣ Part of that role is to
report results. Another part is to design
̣ systems that assist other managerṣ in making ̣
decisions to improve performance. This role requires that accountants understand how
value is created in their organizations.
̣ Identifying ̣ and reporting ̣ how the decisions
managerṣ make affect value creation lead to better decisions.
1-11.
Yes, you should be interested in the efficiency of your customers. The consumer (the
customer of the retailers) is interested in receiving ̣ the most value. If one of the links in
the supply chain is inefficient, the customer may choose to buy from a different retailer
(who might
̣ use a different wholesaler).
1-12.
Costs that you could ask to be reimbursed might ̣ include the fuel, a share of the
maintenance costs, ―wear and tear,‖ or depreciation, and insurance. To avoid
disagreements,
̣ it would be necessary to negotiate
̣ an agreement
̣ (even if only
informally) between you and your friend considering ̣ all factors. For example, you might ̣
agree
̣ that she should pay for the g as
̣ and any other supplies (e.g.,
̣ oil) needed on the
trip.
Solutions Manual, Chapter 4 3
© McGraw Hill LLC. All rights
̣ reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
, If you are going
̣ ̣ along,̣ you might
̣ change
̣ the agreement
̣ so that you split these costs.
Alternatively, you mighṭ say that because you are going
̣ ̣ anyway, she can ride along ̣ for
nothing.̣
1-13.
Cost accounting ̣ provides important information to those who determine strategy.̣ If the
cost accounting ̣ system provides inaccurate information, the organization
̣ may end up
with an unintended strategy,̣ because managerṣ are making ̣ decisions based on faulty
information.
1-14.
Executive performance evaluation systems are designed ̣ for a specific company‘s
needs. The systems should be flexible to adapt to the circumstances that exist in that
company. A common set of accounting ̣ principles would tend to reduce flexibility and
usefulness of these systems. If all parties know the accounting ̣ basis used by the
system, the exact rules can be designed
̣ in whatever manner the parties deem
appropriate.
1-15.
Although ̣ not-for-profit organizations
̣ are not seeking ̣ to make a profit, they must remain
financially viable to accomplish their missions. Cost accounting ̣ information can help
managerṣ of not-for-profit organizations
̣ by highlig
̣ hting
̣ ̣ the costs of various activities,
identifying ̣ sources of revenue, and measuring ̣ performance of managers. ̣ In terms of
organizational
̣ survival, cost accounting ̣ information can be just as (or more) important
for a not-for-profit as for a for-profit firm.
1-16.
Both Goodyear and Pep Boys needs to determine the cost of tire to determine cost of
goods
̣ sold on the income statement and inventory amounts on the balance sheet.
Perhaps the bigg̣ est
̣ difference is that for a retailer, such as Pep Boys, the cost of a tire
is what was paid to the supplier (Goodyear) for the tire. For Goodyear, the problem is not
quite as simple. Goodyear does not buy a tire. It buys materials (rubber, for example)
and labor and combines them in a manufacturing ̣ plant. These resources cost money
and Goodyear needs to determine what resources went into the tires.
A second, though ̣ perhaps less important, difference is that Goodyear may have some
tires that have been started in the production process but have not been completed
when the fiscal year ends. As a result, Goodyear also needs to determine the value of
this incomplete work, the work in process.
4 Fundamentals of Cost Accounting,̣ 7e
© McGraw Hill LLC. All rights
̣ reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
