CHAPTER 1
COVERAGE OF LEARNING OBJECTIVES
FUNDA- CRITICAL CASES,
THINKING EXCEL,
MENTAL
EXERCISES COLLAB., &
ASSIGN- AND INTERNET
MENT EXERCISES EXERCISES
MATERIAL
LEARNING OBJECTIVE PROBLEMS
LO1: Explain why accounting is 30, 31 52, 55
essential for decision makers and
managers.
LO2: Describe the major users and A1, B1 28, 29, 33 39, 40, 42 55
uses of accounting information.
LO3: Explain the role of budgets A2, B2 32 45 53
and performance reports in planning
and control.
LO4: Describe the cost-benefit and 41, 43
behavioral issues involved in
designing an accounting system.
LO5: Discuss the role accountants A1, B1 30, 31, 34, 35, 39, 42, 44, 46
play in the company’s value chain 36
functions.
LO6: Identify current trends in 54
management accounting.
LO7: Explain why ethics and A3, B3 37, 38 47, 48, 49 51, 52, 55
standards of ethical conduct are
important to accountants.
, CHAPTER 1
Managerial Accounting, the Business Organization, and Professional Ethics
1-A1 (10-15 min.)
Information is often useful for more than one function, so the following classifications for each activity
are not definitive but serve as a starting point for discussion:
1. Scorekeeping. A depreciation schedule is used in preparing financial statements to report the
results of activities.
2. Problem solving. Helps a manager assess the impact of a purchase decision.
3. Scorekeeping. Reports on the results of an operation. Could also be attention directing if scrap is
an area that might require management attention.
4. Attention directing. Focuses attention on areas that need attention.
5. Attention directing. Helps managers learn about the information contained in a performance
report.
6. Scorekeeping. The statement reports what has happened. Could also be attention directing if the
report highlights a problem or issue.
7. Problem solving. Assuming the cost comparison is to help the manager decide between two
alternatives, this is problem solving.
8. Attention directing. Variances point out areas where results differ from expectations.
Interpreting them directs attention to possible causes of the differences.
9. Problem solving. Aids a decision about where to make parts.
10. Attention directing and problem solving. Budgeting involves making decisions about planned
activities -- hence, aiding problem solving. Budgets also direct attention to areas of opportunity
or concern -- hence, directing attention. Reporting against the budget also has a scorekeeping
dimension.
,1-A2 (15-20 min.)
1. Budgeted Actual Deviations
Amounts Amounts or Variances
Room rental $ 170 $ 170 $ 0
Food 660 875 215U
Entertainment 570 570 0
Decorations 210 270 60U
Total $1,610 $1,885 $275U
2. Because of the management by exception rule, room rental and entertainment require no
explanation. The actual expenditure for food exceeded the budget by $215. Of this $215, $132 is
explained by attendance of 16 persons more than budgeted (the budget of $660/80 = $8.25 per
person for food and 16 x $8.25 = $132) and the remaining $83 ($215 – $132) is explained by
expenditures above $8.25 per person.
Actual expenditures for decorations were $60 more than the budget. The decorations committee
should be asked for an explanation of the excess expenditures.
1-A3 (10 min.)
All of the situations raise possibilities for violation of the integrity standard. In addition, the manager in
each situation must address an additional ethical standard:
1. The General Mills manager must respect the confidentiality standard. He or she should not
disclose any information about the new cereal.
2. Felix must address his level of competence for the assignment. If his supervisor knows his level
of expertise and wants an analysis from a “layperson” point of view, he should do it. However, if
the supervisor expects an expert analysis, Felix must disclose his lack of competence.
3. The credibility standard should cause Mary Sue to decline to omit the information from the
budget. It is relevant information, and its omission may mislead readers of the budget.
, 1-B1 (15-20 min.)
Information is often useful for more than one function, so the following classifications for each activity
are not definitive but serve as a starting point for discussion:
1. Problem solving. Provides information for deciding between two alternative courses of action.
2. Scorekeeping. Recording what has happened. If amounts are compared with expectations, this
could also serve an attention-directing function.
3. Problem solving. Helps a manager decide among alternatives.
4. Attention directing. Directs attention to the use of overtime labor. Also scorekeeping.
5. Problem solving. Provides information to managers for deciding whether to move corporate
headquarters.
6. Attention directing. Directs attention to why nursing costs increased.
7. Attention directing. Directs attention to areas where actual results differed from the budget.
8. Problem solving. Helps the vice-president decide which course of action is best.
9. Problem solving. Produces information to help the marketing department make a decision about
a marketing campaign.
10. Scorekeeping. Records actual overtime costs. If results are compared with expectations, also
attention directing.
11. Attention directing. Directs attention to stores with either high or low ratios of advertising
expenses to sales.
12. Attention directing. Directs attention to causes of returns of the drug.
13. Attention directing or problem solving, depending on the use of the schedule. If it is to identify
areas of high fuel usage it is attention directing. If it is to plan for purchases of fuel, it is problem
solving.
14. Scorekeeping. Records items needed for financial statements.
COVERAGE OF LEARNING OBJECTIVES
FUNDA- CRITICAL CASES,
THINKING EXCEL,
MENTAL
EXERCISES COLLAB., &
ASSIGN- AND INTERNET
MENT EXERCISES EXERCISES
MATERIAL
LEARNING OBJECTIVE PROBLEMS
LO1: Explain why accounting is 30, 31 52, 55
essential for decision makers and
managers.
LO2: Describe the major users and A1, B1 28, 29, 33 39, 40, 42 55
uses of accounting information.
LO3: Explain the role of budgets A2, B2 32 45 53
and performance reports in planning
and control.
LO4: Describe the cost-benefit and 41, 43
behavioral issues involved in
designing an accounting system.
LO5: Discuss the role accountants A1, B1 30, 31, 34, 35, 39, 42, 44, 46
play in the company’s value chain 36
functions.
LO6: Identify current trends in 54
management accounting.
LO7: Explain why ethics and A3, B3 37, 38 47, 48, 49 51, 52, 55
standards of ethical conduct are
important to accountants.
, CHAPTER 1
Managerial Accounting, the Business Organization, and Professional Ethics
1-A1 (10-15 min.)
Information is often useful for more than one function, so the following classifications for each activity
are not definitive but serve as a starting point for discussion:
1. Scorekeeping. A depreciation schedule is used in preparing financial statements to report the
results of activities.
2. Problem solving. Helps a manager assess the impact of a purchase decision.
3. Scorekeeping. Reports on the results of an operation. Could also be attention directing if scrap is
an area that might require management attention.
4. Attention directing. Focuses attention on areas that need attention.
5. Attention directing. Helps managers learn about the information contained in a performance
report.
6. Scorekeeping. The statement reports what has happened. Could also be attention directing if the
report highlights a problem or issue.
7. Problem solving. Assuming the cost comparison is to help the manager decide between two
alternatives, this is problem solving.
8. Attention directing. Variances point out areas where results differ from expectations.
Interpreting them directs attention to possible causes of the differences.
9. Problem solving. Aids a decision about where to make parts.
10. Attention directing and problem solving. Budgeting involves making decisions about planned
activities -- hence, aiding problem solving. Budgets also direct attention to areas of opportunity
or concern -- hence, directing attention. Reporting against the budget also has a scorekeeping
dimension.
,1-A2 (15-20 min.)
1. Budgeted Actual Deviations
Amounts Amounts or Variances
Room rental $ 170 $ 170 $ 0
Food 660 875 215U
Entertainment 570 570 0
Decorations 210 270 60U
Total $1,610 $1,885 $275U
2. Because of the management by exception rule, room rental and entertainment require no
explanation. The actual expenditure for food exceeded the budget by $215. Of this $215, $132 is
explained by attendance of 16 persons more than budgeted (the budget of $660/80 = $8.25 per
person for food and 16 x $8.25 = $132) and the remaining $83 ($215 – $132) is explained by
expenditures above $8.25 per person.
Actual expenditures for decorations were $60 more than the budget. The decorations committee
should be asked for an explanation of the excess expenditures.
1-A3 (10 min.)
All of the situations raise possibilities for violation of the integrity standard. In addition, the manager in
each situation must address an additional ethical standard:
1. The General Mills manager must respect the confidentiality standard. He or she should not
disclose any information about the new cereal.
2. Felix must address his level of competence for the assignment. If his supervisor knows his level
of expertise and wants an analysis from a “layperson” point of view, he should do it. However, if
the supervisor expects an expert analysis, Felix must disclose his lack of competence.
3. The credibility standard should cause Mary Sue to decline to omit the information from the
budget. It is relevant information, and its omission may mislead readers of the budget.
, 1-B1 (15-20 min.)
Information is often useful for more than one function, so the following classifications for each activity
are not definitive but serve as a starting point for discussion:
1. Problem solving. Provides information for deciding between two alternative courses of action.
2. Scorekeeping. Recording what has happened. If amounts are compared with expectations, this
could also serve an attention-directing function.
3. Problem solving. Helps a manager decide among alternatives.
4. Attention directing. Directs attention to the use of overtime labor. Also scorekeeping.
5. Problem solving. Provides information to managers for deciding whether to move corporate
headquarters.
6. Attention directing. Directs attention to why nursing costs increased.
7. Attention directing. Directs attention to areas where actual results differed from the budget.
8. Problem solving. Helps the vice-president decide which course of action is best.
9. Problem solving. Produces information to help the marketing department make a decision about
a marketing campaign.
10. Scorekeeping. Records actual overtime costs. If results are compared with expectations, also
attention directing.
11. Attention directing. Directs attention to stores with either high or low ratios of advertising
expenses to sales.
12. Attention directing. Directs attention to causes of returns of the drug.
13. Attention directing or problem solving, depending on the use of the schedule. If it is to identify
areas of high fuel usage it is attention directing. If it is to plan for purchases of fuel, it is problem
solving.
14. Scorekeeping. Records items needed for financial statements.
