Solution Manual for
Introduction to Managerial Accounting 7CE Peter C. Brewer, Ray H.
Garrison, Eric Noreen, Suresh Kalagnanam, Ganesh Vaidyanathan
Chapter 1
An Introduction to Managerial Accounting
Solutions to Questions
1-1 Managerial accounting is concerned with providing information primarily to
managers for their use internally in the organization for the purposes of strategy,
planning, implementation and control. Financial accounting is concerned with
providing information primarily to investors, creditors, and others outside of the
organization.
1-2 Essentially, the manager carries out three major activities in an organization:
planning, implementation, and control. All three activities involve decision-
making and use managerial accounting information. This is depicted in Exhibit 1-
1.
1-3 The Planning, Implementation and Control Cycle involves the following steps: (1)
formulating plans which often includes preparing budgets, (2) overseeing day-to-
day activities which includes organizing, directing and motivating people,
resource allocation and decision making, and (3) controlling which includes
providing feedback via performance reports.
1-4 In contrast to financial accounting, managerial accounting: (1) focuses on the
needs of the manager; (2) places more emphasis on the future; (3) emphasizes
relevance and timeliness, rather than verifiability and precision; (4) emphasizes
the segments of an organization; (5) is not governed by IFRS or ASPE; and (6) is
not mandatory.
1-5 The lean business model focuses on continuous improvement by eliminating
waste in the organization. Companies that adopt the lean business model
usually implement one or more of the following management practices.
Just-in-time (JIT): A production and inventory control system in which
materials are purchased and units are produced only as needed to meet
actual customer demand.
Copyright © 2023 McGraw Hill Ltd. All rights reserved.
Solutions Manual, Chapter 2 1
, Total quality management (TQM): An approach to continuous
improvement that focuses on serving customers and uses teams of front-
line workers to systematically identify and solve problems.
Process re-engineering: An approach to improvement that involves
completely redesigning business processes in order to eliminate
unnecessary steps, reduce errors, and reduce costs.
Theory of constraints (TOC): A management approach that
emphasizes the importance of managing constraints.
1-6 Benefits
Improves operational processes that makes the business efficient
It leads to reduction or elimination of waste
It improves profitability and reduces costs
It reduces the turnaround time to fulfill customer orders improving
customer satisfaction
Limitations
Production schedule can get hampered if any external shocks lead to
supply chain disturbance
Lean processes must be complimented with agile processes to adapt
swiftly to changing customer needs.
1-7 Pros
Funds tied up in maintaining inventory can be used elsewhere
Areas previously used to store inventories are made available for other
more productive uses
The time required to fill an order is reduced, resulting in quicker response
to customers and consequentially greater potential sales
Defect rates are reduced resulting in less waste and greater customer
satisfaction
More effective operations
Cons
Increased number of purchase orders to buy raw materials and/or other
components used in manufacturing products
There is little room for errors and defects in products because this could
throw the production facility off schedule
There is a high reliance and dependence on suppliers to meet delivery
deadlines as well as supply products that have no defects and require
minimal inspection
1-8 Agree. Ethical behaviour is the foundation of a successful market economy. If we
cannot trust people to act ethically in their business dealings with us, we will be
inclined to invest less, scrutinize more and waste money and time (scarce
resources) trying to protect ourselves. Ethical standards and Codes of Conduct
© The McGraw-Hill Companies, Inc., 2002. All rights reserved.
2 Introduction to Manag
, aid the smooth running of the economy. In addition, the lack of regulatory
requirements (IFRS, ASPE) regarding managerial accounting makes ethical
behaviour even more critical.
Solutions to Exercises
Exercise 1-1 (LO1 CC2)
Item Financial Managerial
Accounting Accounting
a) Preparing budgeted statements X
of income and financial position
for the next year
b) Analyzing the profitability of a X
new project
c) Preparing the income X
statement and balance sheet
d) Preparing a weekly X
performance report for the
product manager
e) Costing and pricing a new X
product
Exercise 1-2 (LO1 CC1)
Planning Implementation Control
a) Doing a cost–benefit X
analysis of buying new
planes versus leasing them
b) Estimating the cost of X
utilities to be incurred
during the next quarter
Copyright © 2023 McGraw Hill Ltd. All rights reserved.
Solutions Manual, Chapter 2 3
, c) Documenting variances X
from standard costs of
different products
d) Compiling the raw material X
wastage report for the past
month
e) Changing procurement X
process based on an
internal audit report
f) Documenting the savings X
from reductions in raw
materials inventory
resulting from the adoption
of a just-in-time inventory
system
Solutions to Problems
Problem 1-1 (LO3 CC5)
a) This has ethical implications because the code of ethics mandates that all
professional accountants will abide by the fundamental principles. There are two
possible issues here – integrity and objectivity. By not reporting the inventory as
obsolete, Emily will be violating the principle of integrity and due care. There is
also an issue of personal integrity here; as a professional accountant she is
required ―to be straightforward and honest in all professional and business
relationships.‖ Also, as a professional accountant, Emily should not allow her
professional judgement to be compromised by bias or conflict of interest. It
would be hard for Emily to take ethical action in this situation because the
management team is likely to be senior to her in hierarchy. Emily should raise
this matter to her chief financial officer.
b) The main ethical implications here are the issues of Professional Behaviour and
Objectivity. The code mandates that a member will conduct themselves at all
© The McGraw-Hill Companies, Inc., 2002. All rights reserved.
4 Introduction to Manag
Introduction to Managerial Accounting 7CE Peter C. Brewer, Ray H.
Garrison, Eric Noreen, Suresh Kalagnanam, Ganesh Vaidyanathan
Chapter 1
An Introduction to Managerial Accounting
Solutions to Questions
1-1 Managerial accounting is concerned with providing information primarily to
managers for their use internally in the organization for the purposes of strategy,
planning, implementation and control. Financial accounting is concerned with
providing information primarily to investors, creditors, and others outside of the
organization.
1-2 Essentially, the manager carries out three major activities in an organization:
planning, implementation, and control. All three activities involve decision-
making and use managerial accounting information. This is depicted in Exhibit 1-
1.
1-3 The Planning, Implementation and Control Cycle involves the following steps: (1)
formulating plans which often includes preparing budgets, (2) overseeing day-to-
day activities which includes organizing, directing and motivating people,
resource allocation and decision making, and (3) controlling which includes
providing feedback via performance reports.
1-4 In contrast to financial accounting, managerial accounting: (1) focuses on the
needs of the manager; (2) places more emphasis on the future; (3) emphasizes
relevance and timeliness, rather than verifiability and precision; (4) emphasizes
the segments of an organization; (5) is not governed by IFRS or ASPE; and (6) is
not mandatory.
1-5 The lean business model focuses on continuous improvement by eliminating
waste in the organization. Companies that adopt the lean business model
usually implement one or more of the following management practices.
Just-in-time (JIT): A production and inventory control system in which
materials are purchased and units are produced only as needed to meet
actual customer demand.
Copyright © 2023 McGraw Hill Ltd. All rights reserved.
Solutions Manual, Chapter 2 1
, Total quality management (TQM): An approach to continuous
improvement that focuses on serving customers and uses teams of front-
line workers to systematically identify and solve problems.
Process re-engineering: An approach to improvement that involves
completely redesigning business processes in order to eliminate
unnecessary steps, reduce errors, and reduce costs.
Theory of constraints (TOC): A management approach that
emphasizes the importance of managing constraints.
1-6 Benefits
Improves operational processes that makes the business efficient
It leads to reduction or elimination of waste
It improves profitability and reduces costs
It reduces the turnaround time to fulfill customer orders improving
customer satisfaction
Limitations
Production schedule can get hampered if any external shocks lead to
supply chain disturbance
Lean processes must be complimented with agile processes to adapt
swiftly to changing customer needs.
1-7 Pros
Funds tied up in maintaining inventory can be used elsewhere
Areas previously used to store inventories are made available for other
more productive uses
The time required to fill an order is reduced, resulting in quicker response
to customers and consequentially greater potential sales
Defect rates are reduced resulting in less waste and greater customer
satisfaction
More effective operations
Cons
Increased number of purchase orders to buy raw materials and/or other
components used in manufacturing products
There is little room for errors and defects in products because this could
throw the production facility off schedule
There is a high reliance and dependence on suppliers to meet delivery
deadlines as well as supply products that have no defects and require
minimal inspection
1-8 Agree. Ethical behaviour is the foundation of a successful market economy. If we
cannot trust people to act ethically in their business dealings with us, we will be
inclined to invest less, scrutinize more and waste money and time (scarce
resources) trying to protect ourselves. Ethical standards and Codes of Conduct
© The McGraw-Hill Companies, Inc., 2002. All rights reserved.
2 Introduction to Manag
, aid the smooth running of the economy. In addition, the lack of regulatory
requirements (IFRS, ASPE) regarding managerial accounting makes ethical
behaviour even more critical.
Solutions to Exercises
Exercise 1-1 (LO1 CC2)
Item Financial Managerial
Accounting Accounting
a) Preparing budgeted statements X
of income and financial position
for the next year
b) Analyzing the profitability of a X
new project
c) Preparing the income X
statement and balance sheet
d) Preparing a weekly X
performance report for the
product manager
e) Costing and pricing a new X
product
Exercise 1-2 (LO1 CC1)
Planning Implementation Control
a) Doing a cost–benefit X
analysis of buying new
planes versus leasing them
b) Estimating the cost of X
utilities to be incurred
during the next quarter
Copyright © 2023 McGraw Hill Ltd. All rights reserved.
Solutions Manual, Chapter 2 3
, c) Documenting variances X
from standard costs of
different products
d) Compiling the raw material X
wastage report for the past
month
e) Changing procurement X
process based on an
internal audit report
f) Documenting the savings X
from reductions in raw
materials inventory
resulting from the adoption
of a just-in-time inventory
system
Solutions to Problems
Problem 1-1 (LO3 CC5)
a) This has ethical implications because the code of ethics mandates that all
professional accountants will abide by the fundamental principles. There are two
possible issues here – integrity and objectivity. By not reporting the inventory as
obsolete, Emily will be violating the principle of integrity and due care. There is
also an issue of personal integrity here; as a professional accountant she is
required ―to be straightforward and honest in all professional and business
relationships.‖ Also, as a professional accountant, Emily should not allow her
professional judgement to be compromised by bias or conflict of interest. It
would be hard for Emily to take ethical action in this situation because the
management team is likely to be senior to her in hierarchy. Emily should raise
this matter to her chief financial officer.
b) The main ethical implications here are the issues of Professional Behaviour and
Objectivity. The code mandates that a member will conduct themselves at all
© The McGraw-Hill Companies, Inc., 2002. All rights reserved.
4 Introduction to Manag
