Horngren's Financial and
Managerial Accounting, The
Managerial Chapters
Instructor's Solution Manual
Tracie and Brenda
Horngren's Financial & Managerial
Accounting (The Managerial Chapters)
8th Edition
Miller-Nobles Tracie, University of Kansas
Mattison Brenda, University of Kansas
© 2024, 2018, 2015 by Pearson Education, Inc. 1-1
,Chapter M:1
Introduction to Managerial Accounting
Review Questions
1. What is the primary purpose of managerial accounting?
The primary purpose of managerial accounting is to provide information to help managers
plan, direct, control, and make decisions.
2. List six differences between financial accounting and managerial accounting.
Financial accounting and managerial accounting differ on the following 6 dimensions: (1)
primary users, (2) purpose of information, (3) focus and time dimension of the information,
(4) rules and restrictions, (5) scope of information, and (6) behavioral.
3. Explain the difference between line positions and staff positions.
Line positions are directly involved in providing goods or services to customers. Staff positions support line positions.
4. Explain the differences between planning, directing, and controlling.
Planning means choosing goals and deciding how to achieve them. Directing involves running
the day-to-day operations of a business. Controlling is the process of monitoring operations and
keeping the company on track.
5. List the four IMA standards of ethical practice and briefly describe each.
The four IMA standards of ethical practice and a description of each follow.
I. Competence.
Maintain an appropriate level of professional leadership and expertise by enhancing
knowledge and skills.
Perform professional duties in accordance with relevant laws, regulations, and
technical standards.
Provide decision support information and recommendations that are accurate, clear,
concise, and timely.
Recognise and help mange risk.
II. Confidentiality.
Keep information confidential except when disclosure is authorized or legally
required.
© 2024, 2018, 2015 by Pearson Education, Inc. 1-2
, Inform all relevant parties regarding appropriate use of confidential information.
Monitor to ensure compliance.
Refrain from using confidential information for unethical or illegal advantage.
III. Integrity.
Mitigate actual conflicts of interest. Regularly communicate with business associates
to avoid apparent conflicts of interest. Advise all parties of any potential conflicts.
Refrain from engaging in any conduct that would prejudice carrying out duties
ethically.
Abstain from engaging in or supporting any activity that might discredit the
profession.
Contribute to a positive ethical culture and place integrity of the profession above
personal interest.
5, cont.
IV. Credibility.
Communicate information fairly and objectively.
Provide all relevant information that could reasonably be expected to influence an
intended user’s understanding of the reports, analyses, or recommendations.
Report any delays or deficiencies in information, timeliness, processing, or internal
controls in conformance with organization policy and/or applicable law.
Communicate any professional limitations or other constraints that would preclude
responsible judgment or successful performance of an activity.
6. Describe a service company and give an example.
Service companies sell time, skills, and knowledge. Examples of service companies include
phone service companies, banks, cleaning service companies, accounting firms, law firms,
medical physicians, and online auction services.
7. Describe a merchandising company and give an example.
Merchandising companies resell products they buy from suppliers. Merchandisers keep an
inventory of products, and managers are accountable for the purchasing, storage, and sale of
the products. Examples of merchandising companies include toy stores, grocery stores, and
clothing stores.
8. How do manufacturing companies differ from merchandising companies?
Merchandising companies resell products they previously bought from suppliers, whereas
manufacturing companies use labor, equipment, supplies, and facilities to convert raw
materials into new finished products. In contrast to merchandising companies,
© 2024, 2018, 2015 by Pearson Education, Inc. 1-3
, manufacturing companies have a broad range of production activities that require tracking
costs on three kinds of inventory.
9. List the three inventory accounts used by manufacturing companies and describe each.
The three inventory accounts used by manufacturing companies are Raw Materials
Inventory, Work-in-Process Inventory, and Finished Goods Inventory.
Raw Materials Inventory includes materials used to manufacture a product. Work-in-Process
Inventory includes goods that have been started in the manufacturing process but are not yet
complete. Finished Goods Inventory includes completed goods that have not yet been sold.
10. Explain the difference between a direct cost and an indirect cost.
A direct cost is a cost that can be easily and cost-effectively traced to a cost object (which is
anything for which managers want a separate measurement of cost). An indirect cost is a
cost that cannot be easily or cost-effectively traced to a cost object.
11. What are the three manufacturing costs for a manufacturing company? Describe each.
The three manufacturing costs for a manufacturing company are direct materials, direct labor,
and manufacturing overhead. Direct materials are materials that become a physical part of a
finished product and whose costs are easily traceable to the finished product. Direct labor is
the labor cost of the employees who convert materials into finished products. Manufacturing
overhead includes all manufacturing costs except direct materials and direct labor, such as
indirect materials, indirect labor, factory depreciation, factory rent, and factory property
taxes.
12. Give five examples of manufacturing overhead.
Examples of manufacturing overhead include costs of indirect materials, indirect labor, repair
and maintenance in factory, factory utilities, factory rent, factory insurance, factory property
taxes, manufacturing plant managers’ salaries, and depreciation on manufacturing buildings
and equipment.
13. What are prime costs? Conversion costs?
Prime costs are direct materials plus direct labor. Conversion costs are direct labor plus
manufacturing overhead. Note that direct labor is classified as both a prime cost and a
conversion cost.
© 2024, 2018, 2015 by Pearson Education, Inc. 1-4
Managerial Accounting, The
Managerial Chapters
Instructor's Solution Manual
Tracie and Brenda
Horngren's Financial & Managerial
Accounting (The Managerial Chapters)
8th Edition
Miller-Nobles Tracie, University of Kansas
Mattison Brenda, University of Kansas
© 2024, 2018, 2015 by Pearson Education, Inc. 1-1
,Chapter M:1
Introduction to Managerial Accounting
Review Questions
1. What is the primary purpose of managerial accounting?
The primary purpose of managerial accounting is to provide information to help managers
plan, direct, control, and make decisions.
2. List six differences between financial accounting and managerial accounting.
Financial accounting and managerial accounting differ on the following 6 dimensions: (1)
primary users, (2) purpose of information, (3) focus and time dimension of the information,
(4) rules and restrictions, (5) scope of information, and (6) behavioral.
3. Explain the difference between line positions and staff positions.
Line positions are directly involved in providing goods or services to customers. Staff positions support line positions.
4. Explain the differences between planning, directing, and controlling.
Planning means choosing goals and deciding how to achieve them. Directing involves running
the day-to-day operations of a business. Controlling is the process of monitoring operations and
keeping the company on track.
5. List the four IMA standards of ethical practice and briefly describe each.
The four IMA standards of ethical practice and a description of each follow.
I. Competence.
Maintain an appropriate level of professional leadership and expertise by enhancing
knowledge and skills.
Perform professional duties in accordance with relevant laws, regulations, and
technical standards.
Provide decision support information and recommendations that are accurate, clear,
concise, and timely.
Recognise and help mange risk.
II. Confidentiality.
Keep information confidential except when disclosure is authorized or legally
required.
© 2024, 2018, 2015 by Pearson Education, Inc. 1-2
, Inform all relevant parties regarding appropriate use of confidential information.
Monitor to ensure compliance.
Refrain from using confidential information for unethical or illegal advantage.
III. Integrity.
Mitigate actual conflicts of interest. Regularly communicate with business associates
to avoid apparent conflicts of interest. Advise all parties of any potential conflicts.
Refrain from engaging in any conduct that would prejudice carrying out duties
ethically.
Abstain from engaging in or supporting any activity that might discredit the
profession.
Contribute to a positive ethical culture and place integrity of the profession above
personal interest.
5, cont.
IV. Credibility.
Communicate information fairly and objectively.
Provide all relevant information that could reasonably be expected to influence an
intended user’s understanding of the reports, analyses, or recommendations.
Report any delays or deficiencies in information, timeliness, processing, or internal
controls in conformance with organization policy and/or applicable law.
Communicate any professional limitations or other constraints that would preclude
responsible judgment or successful performance of an activity.
6. Describe a service company and give an example.
Service companies sell time, skills, and knowledge. Examples of service companies include
phone service companies, banks, cleaning service companies, accounting firms, law firms,
medical physicians, and online auction services.
7. Describe a merchandising company and give an example.
Merchandising companies resell products they buy from suppliers. Merchandisers keep an
inventory of products, and managers are accountable for the purchasing, storage, and sale of
the products. Examples of merchandising companies include toy stores, grocery stores, and
clothing stores.
8. How do manufacturing companies differ from merchandising companies?
Merchandising companies resell products they previously bought from suppliers, whereas
manufacturing companies use labor, equipment, supplies, and facilities to convert raw
materials into new finished products. In contrast to merchandising companies,
© 2024, 2018, 2015 by Pearson Education, Inc. 1-3
, manufacturing companies have a broad range of production activities that require tracking
costs on three kinds of inventory.
9. List the three inventory accounts used by manufacturing companies and describe each.
The three inventory accounts used by manufacturing companies are Raw Materials
Inventory, Work-in-Process Inventory, and Finished Goods Inventory.
Raw Materials Inventory includes materials used to manufacture a product. Work-in-Process
Inventory includes goods that have been started in the manufacturing process but are not yet
complete. Finished Goods Inventory includes completed goods that have not yet been sold.
10. Explain the difference between a direct cost and an indirect cost.
A direct cost is a cost that can be easily and cost-effectively traced to a cost object (which is
anything for which managers want a separate measurement of cost). An indirect cost is a
cost that cannot be easily or cost-effectively traced to a cost object.
11. What are the three manufacturing costs for a manufacturing company? Describe each.
The three manufacturing costs for a manufacturing company are direct materials, direct labor,
and manufacturing overhead. Direct materials are materials that become a physical part of a
finished product and whose costs are easily traceable to the finished product. Direct labor is
the labor cost of the employees who convert materials into finished products. Manufacturing
overhead includes all manufacturing costs except direct materials and direct labor, such as
indirect materials, indirect labor, factory depreciation, factory rent, and factory property
taxes.
12. Give five examples of manufacturing overhead.
Examples of manufacturing overhead include costs of indirect materials, indirect labor, repair
and maintenance in factory, factory utilities, factory rent, factory insurance, factory property
taxes, manufacturing plant managers’ salaries, and depreciation on manufacturing buildings
and equipment.
13. What are prime costs? Conversion costs?
Prime costs are direct materials plus direct labor. Conversion costs are direct labor plus
manufacturing overhead. Note that direct labor is classified as both a prime cost and a
conversion cost.
© 2024, 2018, 2015 by Pearson Education, Inc. 1-4
