CHAPTER
1:
AN INTRODUCTION TO MANAGERIAL ACCOUNTING
ANSWERS TO QUESTIONS
1. Some of the strategies facing a firm in the restaurant industry are where to locate, what type
of food to offer, what level of services to offer, what price range of foods to offer, what level and
qualifications of personnel to hire (e.g., famous chef?).
2. They both have the functions of planning, organizing, directing and controlling operations.
However, they differ in terms of their major goals. The university is a not-for-profit
organization. Its goals are to educate students, perform research, and serve the community. A
garden equipment sales and service firm has a profit goal. Unless the firm realizes a profit it
may be unable to pursue other goals such as having a reputation as a good place to work,
serving the community, and providing aid to charities.
3. Some use of estimates in financial accounting are in calculating amounts of depreciation
expense and allowance for doubtful accounts expense. Some examples of estimates used in
management accounting in the planning function involve predicting future factors and events
such as the state of the economy and actions by competitors.
4. Coordination involves getting all units of the organizations to work toward the same goal.
For instance, in a restaurant it is necessary to coordinate the activities of the chefs and wait staff
so that meals are provided in a timely and attractive manner. Also, the person doing the
purchasing of foods must coordinate his or her activities with the chef staff so that foods and
ingredients are on hand when needed.
5. Information is any advice, datum, facts, or perceptions relating to a circumstance or thing
that adds to one’s store of knowledge. Both televised programs and books contain information
in that their content can add to one’s store of knowledge. They are likely to contain
management information only if the information is relevant, that is, pertinent to or bearing
upon a decision that must be made.
6. The main objectives of a football team are to win, make a profit, and to entertain. Some of its
strategies include hiring the best coaches and players, having a desirable location, joining the
top league, having adequate parking, and engaging in effective advertising and promotion. The
organizational structure involves having an owner, general manager, and coaches for the
various player roles such as linebacker and quarterback. The management functions include
planning, organizing, directing, and controlling operations.
7. Generally accepted accounting principles (GAAP) do affect management accounting.
Generally accepted accounting principles report the effects of past operations in a manner that
is guided by specific rules. When managerial accountants look at past reports, these reports are
,guided by GAAP. Managerial accountants generally use the formal financial statements
reporting past operations as a springboard to estimating future operations, especially in the
planning function.
8. Financial accounting information involves the effects of transactions and results in the
preparation of the standard financial statements. Recording these transactions is guided by
generally accepted accounting principles. Management accounting information is any
accounting information that management finds helpful in making decisions regarding problems
or opportunities as they arise. Much accounting information is common to both categories.
9. Some of the differences between financial and managerial accounting are:
a. In most firms financial accounting is mandatory, while management accounting is
completely optional.
b. Financial accounting and reporting are controlled and guided by generally accepted
accounting principles. Management account information is often special-purpose
information for specific managers and can specify any rules or principles it wishes in
developing information it considers useful.
c. Financial accounting information is historical in nature, while management accounting is
future-oriented.
d. Financial accounting relates to the entire firm, while management accounting provides
information on the various parts of a firm.
e. Financial accounting is closely related to economics. Management accounting is used in a
wider range of decisions and draws from disciplines in addition to economics such as
finance, statistics, and the behavioral sciences.
f. Management accounting is more likely to deal with approximations rather than the
verifiably precise measures often found in financial accounting.
g. Management accounting reports often include non-monetary quantities, while financial
accounting is expressed in money terms.
10. A business may have objectives such as gaining a reputation for providing quality products
at fair prices or being a good place to work. Another goal might be to benefit the city and region
in which they are located by supporting higher education, building hospitals and civic theaters,
and sponsoring children’s sports leagues.
11. Feedback is information developed in the controlling process showing how well an
organization is achieving its objectives. A manager might compare the income statement
actually achieved with the budgeted income statement prepared at the beginning of the period.
12. Management accountants provide information to managers so they can make sound
decisions regarding events that arise. Greater efficiency would not result from such
specialization because managers would lack the relevant information they need to make sound
decisions.
,13. Relevant information is needed by managers to make sound decisions.
14. Annual budgetary planning involves planning for only a one-year period, whereas strategic
planning usually involves a much longer period of time.
15. A controller at least partially controls expenses in a business. However, the term controller
implies much more control over the functions and activities of a business than actually exists.
The controller has to work with others in the company to achieve its goals.
16. One example of information properly accumulated for one purpose being used improperly
for another purpose would be to take last year’s sales amount and place it unchanged into next
year’s budget. Changes in the economy and actions by competitors should be taken into
consideration.
, SOLUTIONS TO PROBLEMS
Problem 1-1
(15 min.)
Board of Internal
Audit
Directors Department
President
Mgr. Legal & Personnel
V-P Sales Controller
Mgr. Retail Div. Mgr. Adv. Dept. Mgr. Wholesale
Off. Equip, & Off. Supp. Dept. Service Dept. Off. Equip. & Off. Supp.
Furn. Dept. Furn. Dept. Dept.
Dept.
1:
AN INTRODUCTION TO MANAGERIAL ACCOUNTING
ANSWERS TO QUESTIONS
1. Some of the strategies facing a firm in the restaurant industry are where to locate, what type
of food to offer, what level of services to offer, what price range of foods to offer, what level and
qualifications of personnel to hire (e.g., famous chef?).
2. They both have the functions of planning, organizing, directing and controlling operations.
However, they differ in terms of their major goals. The university is a not-for-profit
organization. Its goals are to educate students, perform research, and serve the community. A
garden equipment sales and service firm has a profit goal. Unless the firm realizes a profit it
may be unable to pursue other goals such as having a reputation as a good place to work,
serving the community, and providing aid to charities.
3. Some use of estimates in financial accounting are in calculating amounts of depreciation
expense and allowance for doubtful accounts expense. Some examples of estimates used in
management accounting in the planning function involve predicting future factors and events
such as the state of the economy and actions by competitors.
4. Coordination involves getting all units of the organizations to work toward the same goal.
For instance, in a restaurant it is necessary to coordinate the activities of the chefs and wait staff
so that meals are provided in a timely and attractive manner. Also, the person doing the
purchasing of foods must coordinate his or her activities with the chef staff so that foods and
ingredients are on hand when needed.
5. Information is any advice, datum, facts, or perceptions relating to a circumstance or thing
that adds to one’s store of knowledge. Both televised programs and books contain information
in that their content can add to one’s store of knowledge. They are likely to contain
management information only if the information is relevant, that is, pertinent to or bearing
upon a decision that must be made.
6. The main objectives of a football team are to win, make a profit, and to entertain. Some of its
strategies include hiring the best coaches and players, having a desirable location, joining the
top league, having adequate parking, and engaging in effective advertising and promotion. The
organizational structure involves having an owner, general manager, and coaches for the
various player roles such as linebacker and quarterback. The management functions include
planning, organizing, directing, and controlling operations.
7. Generally accepted accounting principles (GAAP) do affect management accounting.
Generally accepted accounting principles report the effects of past operations in a manner that
is guided by specific rules. When managerial accountants look at past reports, these reports are
,guided by GAAP. Managerial accountants generally use the formal financial statements
reporting past operations as a springboard to estimating future operations, especially in the
planning function.
8. Financial accounting information involves the effects of transactions and results in the
preparation of the standard financial statements. Recording these transactions is guided by
generally accepted accounting principles. Management accounting information is any
accounting information that management finds helpful in making decisions regarding problems
or opportunities as they arise. Much accounting information is common to both categories.
9. Some of the differences between financial and managerial accounting are:
a. In most firms financial accounting is mandatory, while management accounting is
completely optional.
b. Financial accounting and reporting are controlled and guided by generally accepted
accounting principles. Management account information is often special-purpose
information for specific managers and can specify any rules or principles it wishes in
developing information it considers useful.
c. Financial accounting information is historical in nature, while management accounting is
future-oriented.
d. Financial accounting relates to the entire firm, while management accounting provides
information on the various parts of a firm.
e. Financial accounting is closely related to economics. Management accounting is used in a
wider range of decisions and draws from disciplines in addition to economics such as
finance, statistics, and the behavioral sciences.
f. Management accounting is more likely to deal with approximations rather than the
verifiably precise measures often found in financial accounting.
g. Management accounting reports often include non-monetary quantities, while financial
accounting is expressed in money terms.
10. A business may have objectives such as gaining a reputation for providing quality products
at fair prices or being a good place to work. Another goal might be to benefit the city and region
in which they are located by supporting higher education, building hospitals and civic theaters,
and sponsoring children’s sports leagues.
11. Feedback is information developed in the controlling process showing how well an
organization is achieving its objectives. A manager might compare the income statement
actually achieved with the budgeted income statement prepared at the beginning of the period.
12. Management accountants provide information to managers so they can make sound
decisions regarding events that arise. Greater efficiency would not result from such
specialization because managers would lack the relevant information they need to make sound
decisions.
,13. Relevant information is needed by managers to make sound decisions.
14. Annual budgetary planning involves planning for only a one-year period, whereas strategic
planning usually involves a much longer period of time.
15. A controller at least partially controls expenses in a business. However, the term controller
implies much more control over the functions and activities of a business than actually exists.
The controller has to work with others in the company to achieve its goals.
16. One example of information properly accumulated for one purpose being used improperly
for another purpose would be to take last year’s sales amount and place it unchanged into next
year’s budget. Changes in the economy and actions by competitors should be taken into
consideration.
, SOLUTIONS TO PROBLEMS
Problem 1-1
(15 min.)
Board of Internal
Audit
Directors Department
President
Mgr. Legal & Personnel
V-P Sales Controller
Mgr. Retail Div. Mgr. Adv. Dept. Mgr. Wholesale
Off. Equip, & Off. Supp. Dept. Service Dept. Off. Equip. & Off. Supp.
Furn. Dept. Furn. Dept. Dept.
Dept.
