SOLUTIONS MANUAL
MANAGEMENT AND COST ACCOUNTING
8TH EDITION
CHAPTER NO. 01:THE MANAGER AND MANAGEMENT ACCOUNTING
Teaching tips and points to stress
Modern management accounting
While the accounting system provides information (e.g. product costs, downtime) for management
decisions, cost management refers to the active use of this information to plan and control costs.
Cost management requires managers to actively seek ways to reduce costs. Much cost management
occurs well before the accounting system recognises costs. (The product design stage often offers
more cost management opportunities than controlling manufacturing operations.) Cost
management is integrated throughout the text.
To reinforce the value-chain concept, ask a student to illustrate activities/costs in each function in
the context of his/her work experience.
Students are often confused about the difference between R&D and design. The distinctions are not
always clear-cut, but R&D is basic research and idea generation, whereas design turns those ideas
into reality. Design encompasses the development of prototype products and the manufacturing
process by which the products are produced.
Elements of management control
Planning and control are distinct activities, but they go hand in hand. To maximise the benefits
from planning (e.g. budgeting), the manager should use that plan as a benchmark for controlling
(i.e. assessing the effectiveness and efficiency of implementation). Conversely, it is difficult to
control activities without a plan or budget.
To help students understand how accounting numbers can affect employees’ behaviour and hence
a firm’s performance, ask questions, such as if a materials procurement officer’s annual bonus
depends on the difference between budgeted price and actual price paid, how will the officer
behave? The officer may be tempted to purchase cheap, perhaps low-quality, materials that may
not be delivered on a reliable, timely basis; he or she may refuse to order materials for rush orders
if there will be an extra delivery charge etc.
Although it is difficult to quantify the costs and benefits of accounting systems, a decision about
the system will be made. The question is whether costs and benefits are considered implicitly (as
part of a ‘gut feeling’) or explicitly, where effects of different estimates can be examined.
Additionally, it is always essential to consider the context in which management operates.
Product cost information permeates all three functions. In the scorekeeping function, accountants
accumulate product cost information for both external and internal reporting. Product cost
,information can help identify cost management opportunities (i.e. attention directing), and it is
used in make-or-buy decisions, where managers compare the cost of making the product or
component with the cost of buying it from an external supplier (i.e. problem solving).
Costs, benefits and context
The ‘best’ information system depends on both technical and human aspects of the specific
situation. This is a major difference between financial accounting, where firms generally need to
comply with external reporting requirements where they exist, and management accounting, where
choices are based on an explicit or implicit cost–benefit analysis. Management accounting students
must do more than memorising rules. They must evaluate the situation and context, decide which
technique or information system is the most appropriate and implement it.
Key challenges in management accounting
One major challenge facing accountants relates to digitalisation. This is the process by which firms
become digital businesses, and the use of digital technologies changes the business model and
provides new revenue and value-producing possibilities. Digitalisation is about enterprises not just
having to become digitised but being digital.
Some emerging technologies which management accountants should understand are artificial
intelligence (AI) and robotics, blockchain, big data and analytics, and the cloud.
Solutions to review questions
1.1 The five broad purposes are:
Purpose 1: Formulating overall strategies and long-range plans.
Purpose 2: Resource allocation decisions such as product and customer emphasis and
pricing.
Purpose 3: Cost planning and cost control of operations and activities.
Purpose 4: Performance measurement and evaluation of people.
Purpose 5: Meeting external regulatory and legal reporting requirements where they exist.
1.2 Management accounting measures and reports financial as well as other types of
information that may be useful to managers in fulfilling the goals of the organisation.
Financial accounting focuses on external reporting that is guided by generally accepted
accounting principles.
,1.3 The business functions in the value chain are:
• Research and development – the generation of, and experimentation with, ideas
related to new products, services or processes.
• Design of products, services and processes – the detailed planning and engineering
of products, services or processes.
• Production – the coordination and assembly of resources to produce a product or
deliver a service.
• Marketing – the process by which individuals or groups (a) learn about and value the
attributes of products or services and (b) purchase those products or services.
• Distribution – the mechanism by which products or services are delivered to a
customer.
• Customer service – the support activities provided to the customers.
1.4 Cost management refers to actions that managers undertake to satisfy customers while
continuously reducing and controlling costs.
1.5 A successful accountant requires general business skills (such as understanding the
strategy of an organisation) and people skills (such as motivating other team members) as
well as technical skills (such as computer knowledge).
1.6 Yes. Drucker is advocating that accountants do more than scorekeeping, which is often
interpreted as being a ‘bobby on the beat’ or a watchdog. It is also essential that accountants
emphasise their attention-directing and problem-solving functions.
1.7 The new accountant could reply in one or more of several ways:
a Demonstrate to the plant manager how he or she could make better decisions, if the
plant accountant was viewed as a resource rather than a dead weight.
In a related way, the plant accountant could show how the plant manager’s time and
resources could be saved by viewing the new plant accountant as a team member.
b Demonstrate to the plant manager a good knowledge of technical aspects at the plant.
This approach may involve doing background reading. It certainly will involve
spending much time on the plant floor speaking to plant personnel.
c Show the plant manager examples of the new plant accountant’s past successes in
working with line managers in other plants. Examples could include
• assistance in preparing the budget,
, • assistance in analysing problem situations and
• assistance in submitting capital budget requests.
d. Seek assistance from the corporate accountant to highlight to the plant manager the
importance of many tasks undertaken by the new plant accountant. This approach is a
last resort but may be necessary in some cases.
1.8 A customer-driven management accountant function would
a approach its customers (such as managers in different parts of the value chain) to
determine how it can facilitate those managers to make better decisions, and
b solicit regular and systematic feedback from those customers about its performance.
1.9 Yes, management accountants have customers just as companies have customers who
purchase their products or services. Management accountants provide information and
advice to many line and staff people in the organisation and to various external parties. It
is essential that they provide information and advice that line and staff customers and
external parties view as timely and relevant.
1.10 Five themes that affect the way managers operate and have prompted developments in
management accounting are the following:
• Customer satisfaction is priority one
• Key success factors (cost, quality, time and innovative products and services)
• Total value-chain analysis
• Continuous improvement
• Dual external/internal focus.
MANAGEMENT AND COST ACCOUNTING
8TH EDITION
CHAPTER NO. 01:THE MANAGER AND MANAGEMENT ACCOUNTING
Teaching tips and points to stress
Modern management accounting
While the accounting system provides information (e.g. product costs, downtime) for management
decisions, cost management refers to the active use of this information to plan and control costs.
Cost management requires managers to actively seek ways to reduce costs. Much cost management
occurs well before the accounting system recognises costs. (The product design stage often offers
more cost management opportunities than controlling manufacturing operations.) Cost
management is integrated throughout the text.
To reinforce the value-chain concept, ask a student to illustrate activities/costs in each function in
the context of his/her work experience.
Students are often confused about the difference between R&D and design. The distinctions are not
always clear-cut, but R&D is basic research and idea generation, whereas design turns those ideas
into reality. Design encompasses the development of prototype products and the manufacturing
process by which the products are produced.
Elements of management control
Planning and control are distinct activities, but they go hand in hand. To maximise the benefits
from planning (e.g. budgeting), the manager should use that plan as a benchmark for controlling
(i.e. assessing the effectiveness and efficiency of implementation). Conversely, it is difficult to
control activities without a plan or budget.
To help students understand how accounting numbers can affect employees’ behaviour and hence
a firm’s performance, ask questions, such as if a materials procurement officer’s annual bonus
depends on the difference between budgeted price and actual price paid, how will the officer
behave? The officer may be tempted to purchase cheap, perhaps low-quality, materials that may
not be delivered on a reliable, timely basis; he or she may refuse to order materials for rush orders
if there will be an extra delivery charge etc.
Although it is difficult to quantify the costs and benefits of accounting systems, a decision about
the system will be made. The question is whether costs and benefits are considered implicitly (as
part of a ‘gut feeling’) or explicitly, where effects of different estimates can be examined.
Additionally, it is always essential to consider the context in which management operates.
Product cost information permeates all three functions. In the scorekeeping function, accountants
accumulate product cost information for both external and internal reporting. Product cost
,information can help identify cost management opportunities (i.e. attention directing), and it is
used in make-or-buy decisions, where managers compare the cost of making the product or
component with the cost of buying it from an external supplier (i.e. problem solving).
Costs, benefits and context
The ‘best’ information system depends on both technical and human aspects of the specific
situation. This is a major difference between financial accounting, where firms generally need to
comply with external reporting requirements where they exist, and management accounting, where
choices are based on an explicit or implicit cost–benefit analysis. Management accounting students
must do more than memorising rules. They must evaluate the situation and context, decide which
technique or information system is the most appropriate and implement it.
Key challenges in management accounting
One major challenge facing accountants relates to digitalisation. This is the process by which firms
become digital businesses, and the use of digital technologies changes the business model and
provides new revenue and value-producing possibilities. Digitalisation is about enterprises not just
having to become digitised but being digital.
Some emerging technologies which management accountants should understand are artificial
intelligence (AI) and robotics, blockchain, big data and analytics, and the cloud.
Solutions to review questions
1.1 The five broad purposes are:
Purpose 1: Formulating overall strategies and long-range plans.
Purpose 2: Resource allocation decisions such as product and customer emphasis and
pricing.
Purpose 3: Cost planning and cost control of operations and activities.
Purpose 4: Performance measurement and evaluation of people.
Purpose 5: Meeting external regulatory and legal reporting requirements where they exist.
1.2 Management accounting measures and reports financial as well as other types of
information that may be useful to managers in fulfilling the goals of the organisation.
Financial accounting focuses on external reporting that is guided by generally accepted
accounting principles.
,1.3 The business functions in the value chain are:
• Research and development – the generation of, and experimentation with, ideas
related to new products, services or processes.
• Design of products, services and processes – the detailed planning and engineering
of products, services or processes.
• Production – the coordination and assembly of resources to produce a product or
deliver a service.
• Marketing – the process by which individuals or groups (a) learn about and value the
attributes of products or services and (b) purchase those products or services.
• Distribution – the mechanism by which products or services are delivered to a
customer.
• Customer service – the support activities provided to the customers.
1.4 Cost management refers to actions that managers undertake to satisfy customers while
continuously reducing and controlling costs.
1.5 A successful accountant requires general business skills (such as understanding the
strategy of an organisation) and people skills (such as motivating other team members) as
well as technical skills (such as computer knowledge).
1.6 Yes. Drucker is advocating that accountants do more than scorekeeping, which is often
interpreted as being a ‘bobby on the beat’ or a watchdog. It is also essential that accountants
emphasise their attention-directing and problem-solving functions.
1.7 The new accountant could reply in one or more of several ways:
a Demonstrate to the plant manager how he or she could make better decisions, if the
plant accountant was viewed as a resource rather than a dead weight.
In a related way, the plant accountant could show how the plant manager’s time and
resources could be saved by viewing the new plant accountant as a team member.
b Demonstrate to the plant manager a good knowledge of technical aspects at the plant.
This approach may involve doing background reading. It certainly will involve
spending much time on the plant floor speaking to plant personnel.
c Show the plant manager examples of the new plant accountant’s past successes in
working with line managers in other plants. Examples could include
• assistance in preparing the budget,
, • assistance in analysing problem situations and
• assistance in submitting capital budget requests.
d. Seek assistance from the corporate accountant to highlight to the plant manager the
importance of many tasks undertaken by the new plant accountant. This approach is a
last resort but may be necessary in some cases.
1.8 A customer-driven management accountant function would
a approach its customers (such as managers in different parts of the value chain) to
determine how it can facilitate those managers to make better decisions, and
b solicit regular and systematic feedback from those customers about its performance.
1.9 Yes, management accountants have customers just as companies have customers who
purchase their products or services. Management accountants provide information and
advice to many line and staff people in the organisation and to various external parties. It
is essential that they provide information and advice that line and staff customers and
external parties view as timely and relevant.
1.10 Five themes that affect the way managers operate and have prompted developments in
management accounting are the following:
• Customer satisfaction is priority one
• Key success factors (cost, quality, time and innovative products and services)
• Total value-chain analysis
• Continuous improvement
• Dual external/internal focus.
