Solution Manual
Accounting For Decision Making And Control
By Jerold Zimmerman
10th Edition
,Solutions Manual For Accounting For Decision Making And Control,
10e Jerold L. Zimmerman
Solutions To Problems And Cases
CHAPTER 1
INTRODUCTION
P 1–1: Solution To Mba Students (10 Minutes)
[Using Accounting Information For Decision Making And Control]
Together The Two Observations Highlight The Extremes In The Trade-Offs Of
Using Accounting Information For Decision And Control. In The First Case, There Is
More Analysis Of Opportunity Costs That Are Hard To Capture With Typical
Accounting Information. In The Second Case, There Is Less Intended Interest In
Opportunity Cost And Greater Emphasis On Control.
P 1–2: Solution To One Cost System Isn't Enough (15
Minutes) [Economic Darwinism]
The First Part Of The Quote Describes The Tension (And Conflict) That Arises
When A Single Accounting System Is Used For Multiple Purposes. This Part Of The
Statement Is An Accurate Description Of Practice. However, The Quote Has A Couple
Of Problems, Including:
•While The Quote Describes The Costs Of Using A Single System ("A Single
System ... Can't Perform Important Managerial Functions Adequately"), The Quote Does
Not Describe The Benefits Derived From Using A Single System (Lower Bookkeeping
Costs, A Single Audit, Less Confusion).
•Because The Quote Ignores The Benefits Of A Single System, It Ignores The
Concept Of Economic Darwinism. It Does Not Address The Question Of How Surviving
(Successful) Companies Can Compete If A Single System "Can't Perform Important
Managerial Functions Adequately."
•Also, The Quote Assumes That Managers Are Bound To Their Internal
Accounting Systems, That No Other Alternative Information Sources Are Available.
Often Managers Develop Their Own Ad Hoc, "Off-Line" Information Systems For
Decision Making. These Systems Include Spreadsheets, Informal Observation, And
"Walking Around."
P 1–3: Solution To U.S. And Japanese Tax Laws (15
Minutes) [Influence Of Conflicting Demands On Cost
, Systems]
The Internal Accounting System Supports Multiple Uses, Including Financial
Reporting, Taxes, Contracting (Debt And Management Compensation), Internal Decision
Making, And Internal Control. Because Multiple Purposes Are Served, Trade-Offs Must
Be Made Among The Competing Demands. When More Emphasis Is Placed On One
Purpose (Taxes), Less Consideration Can Be Given To Other Uses (Internal
Decision Making And
Control). By Linking Taxes To External Reporting, Japanese Firms’ Financial Reports
Will Be Based On Accounting Procedures That Give More Weight To Tax
Considerations. In The U.S., Companies Can Keep Two Sets Of Books, One For Taxes
And The Other For Financial Reporting. Thus, In The U.S., There Is More Of A
Decoupling Of Taxes And Everything Else. Except For The Additional Bookkeeping
Costs Of Producing The Two Separate Sets Of Reports, Tax Considerations Are
Predicted To Have Less Influence On The Choice Of Internal (And Thus External)
Accounting Procedures In The U.S. Than In Japan.
The Question Is Raised As To Why Firms Use The Same Accounting Procedures
For Internal Reports As They Do For External Reports. Or For That Matter, Why Do Tax
Laws And External Financial Reporting Considerations Have Any Effect On Internal
Accounting Procedures? Why Don’t Firms Maintain Multiple Sets Of Accounts, One For
Each Purpose (E.G., Financial Reporting, Internal Decision Making, And Internal
Control)? Clearly There Are Additional Bookkeeping Costs For Maintaining Multiple
Sets Of Accounts. But Also, There Are Confusion Costs And, In Many Instances, Firms
Explicitly Link Senior Executive Compensation To Externally Reported Financial
Statements. Such Explicit Linkage Of Executive Pay To Externally Reported Net Income
Presumably Exists To Control Agency Costs Between Management And Shareholders.
Once Senior Management Performance And Rewards Are Linked To External Reports,
The Internal Reporting System Will Become Linked To The External Reports And
Basically Less Consideration Will Be Given To Choosing Accounting Procedures That
Aid In Internal Decision Making And Internal Control.
In Japan, The Firm’s Accounting Systems Are Less Likely To Be Used For
Internal Uses (Decision Making And Control) Than In The U.S. Because They Cannot
Rely As Much On Their Accounting Systems For Internal Uses (Because More Weight Is
Placed On Using Accounting Procedures To Reduce Taxes), Japanese Managers Are
More Likely To Use Non-Accounting- Based Systems For Internal Decision Making And
Control.
P 1-4: Solution To Using Accounting For Planning (15
Minutes) [Usefulness Of Historical Costs]
a. Historical Costs Are Of Limited Use In Making Planning Decisions In A Rapidly
Changing Environment. With Changing Products, Processes And Prices, The
Historical Costs Are Inadequate Approximations Of The Opportunity Costs Of
Using Resources.
, Historical Costs May, However, Be Useful For Control Purposes, As They
Provide Information About The Activities Of Managers And Can Be Used As
Performance Measures To Evaluate Managers.
b. The Purpose Of Accounting Systems Is To Provide Information For Planning
Purposes And Control. Although Historical Costs Are Not Generally Appropriate
For Planning Purposes, Additional Measures Are Costly To Make. An
Accounting System Should Include Additional Measures If The Benefits Of
Improved Decision Making Are Greater Than The Costs Of The Additional
Information.
P 1–5: Solution To Budgeting (15 Minutes)
[Trade-Off Between Decision Making And Control]
In This Firm, The Bonus Is Based On Meeting The Budget. Two Incentives
Exist: Sales People Will Under-Forecast Future Sales And They Have Little Incentive To
Sell More Than The Budget.
This Firm Tries To Use The Budget For Two Functions: Decision Making And
Control. In Deciding On Next Year’s Production Plans, Sales Peoples’ Forecasts Of
Future Sales Are Important. However, These Same Forecasts (After Revision By
Supervisors) Are Used As Part Of The Compensation Scheme To Motivate The Sales
People To Achieve Their Goals. By Using The Budget (Forecasts) As Part Of The
Control System, The Firm Gives Up Some Of The Budget’s Usefulness As A Decision
Making Tool To Set Production Plans. While Senior Managers Might Recognize That
The Sales People’s Forecasts Are Low, They Don’t Know Exactly How Low. This
Introduces More Uncertainty Into Planning For Next Year’s Production.
P 1-6: Solution To Golf Specialties (20 Minutes)
[Average Versus Variable Cost Of An Incremental Order]
a. Given That The Variable Cost Per Head Cover Is 1.10 Euros, The Fixed Cost Per
Week Is:
Ac = Fc / Q + Vc
3.10 = Fc/600 + 1.10 3.50 = Fc/500 + 1.10
Fc = 1,200 Euros Fc = 1,200 Euros
b. The Change In Total Cost If The 100 Unit Kojo Offer Is
Accepted Is: 600 × 3.10 Euros – 500 × 3.50 Euros = 110 Euros
Or, Each Head Cover Has Variable Cost Of 1.10 Euro. Since Kojo Is Willing To
Accounting For Decision Making And Control
By Jerold Zimmerman
10th Edition
,Solutions Manual For Accounting For Decision Making And Control,
10e Jerold L. Zimmerman
Solutions To Problems And Cases
CHAPTER 1
INTRODUCTION
P 1–1: Solution To Mba Students (10 Minutes)
[Using Accounting Information For Decision Making And Control]
Together The Two Observations Highlight The Extremes In The Trade-Offs Of
Using Accounting Information For Decision And Control. In The First Case, There Is
More Analysis Of Opportunity Costs That Are Hard To Capture With Typical
Accounting Information. In The Second Case, There Is Less Intended Interest In
Opportunity Cost And Greater Emphasis On Control.
P 1–2: Solution To One Cost System Isn't Enough (15
Minutes) [Economic Darwinism]
The First Part Of The Quote Describes The Tension (And Conflict) That Arises
When A Single Accounting System Is Used For Multiple Purposes. This Part Of The
Statement Is An Accurate Description Of Practice. However, The Quote Has A Couple
Of Problems, Including:
•While The Quote Describes The Costs Of Using A Single System ("A Single
System ... Can't Perform Important Managerial Functions Adequately"), The Quote Does
Not Describe The Benefits Derived From Using A Single System (Lower Bookkeeping
Costs, A Single Audit, Less Confusion).
•Because The Quote Ignores The Benefits Of A Single System, It Ignores The
Concept Of Economic Darwinism. It Does Not Address The Question Of How Surviving
(Successful) Companies Can Compete If A Single System "Can't Perform Important
Managerial Functions Adequately."
•Also, The Quote Assumes That Managers Are Bound To Their Internal
Accounting Systems, That No Other Alternative Information Sources Are Available.
Often Managers Develop Their Own Ad Hoc, "Off-Line" Information Systems For
Decision Making. These Systems Include Spreadsheets, Informal Observation, And
"Walking Around."
P 1–3: Solution To U.S. And Japanese Tax Laws (15
Minutes) [Influence Of Conflicting Demands On Cost
, Systems]
The Internal Accounting System Supports Multiple Uses, Including Financial
Reporting, Taxes, Contracting (Debt And Management Compensation), Internal Decision
Making, And Internal Control. Because Multiple Purposes Are Served, Trade-Offs Must
Be Made Among The Competing Demands. When More Emphasis Is Placed On One
Purpose (Taxes), Less Consideration Can Be Given To Other Uses (Internal
Decision Making And
Control). By Linking Taxes To External Reporting, Japanese Firms’ Financial Reports
Will Be Based On Accounting Procedures That Give More Weight To Tax
Considerations. In The U.S., Companies Can Keep Two Sets Of Books, One For Taxes
And The Other For Financial Reporting. Thus, In The U.S., There Is More Of A
Decoupling Of Taxes And Everything Else. Except For The Additional Bookkeeping
Costs Of Producing The Two Separate Sets Of Reports, Tax Considerations Are
Predicted To Have Less Influence On The Choice Of Internal (And Thus External)
Accounting Procedures In The U.S. Than In Japan.
The Question Is Raised As To Why Firms Use The Same Accounting Procedures
For Internal Reports As They Do For External Reports. Or For That Matter, Why Do Tax
Laws And External Financial Reporting Considerations Have Any Effect On Internal
Accounting Procedures? Why Don’t Firms Maintain Multiple Sets Of Accounts, One For
Each Purpose (E.G., Financial Reporting, Internal Decision Making, And Internal
Control)? Clearly There Are Additional Bookkeeping Costs For Maintaining Multiple
Sets Of Accounts. But Also, There Are Confusion Costs And, In Many Instances, Firms
Explicitly Link Senior Executive Compensation To Externally Reported Financial
Statements. Such Explicit Linkage Of Executive Pay To Externally Reported Net Income
Presumably Exists To Control Agency Costs Between Management And Shareholders.
Once Senior Management Performance And Rewards Are Linked To External Reports,
The Internal Reporting System Will Become Linked To The External Reports And
Basically Less Consideration Will Be Given To Choosing Accounting Procedures That
Aid In Internal Decision Making And Internal Control.
In Japan, The Firm’s Accounting Systems Are Less Likely To Be Used For
Internal Uses (Decision Making And Control) Than In The U.S. Because They Cannot
Rely As Much On Their Accounting Systems For Internal Uses (Because More Weight Is
Placed On Using Accounting Procedures To Reduce Taxes), Japanese Managers Are
More Likely To Use Non-Accounting- Based Systems For Internal Decision Making And
Control.
P 1-4: Solution To Using Accounting For Planning (15
Minutes) [Usefulness Of Historical Costs]
a. Historical Costs Are Of Limited Use In Making Planning Decisions In A Rapidly
Changing Environment. With Changing Products, Processes And Prices, The
Historical Costs Are Inadequate Approximations Of The Opportunity Costs Of
Using Resources.
, Historical Costs May, However, Be Useful For Control Purposes, As They
Provide Information About The Activities Of Managers And Can Be Used As
Performance Measures To Evaluate Managers.
b. The Purpose Of Accounting Systems Is To Provide Information For Planning
Purposes And Control. Although Historical Costs Are Not Generally Appropriate
For Planning Purposes, Additional Measures Are Costly To Make. An
Accounting System Should Include Additional Measures If The Benefits Of
Improved Decision Making Are Greater Than The Costs Of The Additional
Information.
P 1–5: Solution To Budgeting (15 Minutes)
[Trade-Off Between Decision Making And Control]
In This Firm, The Bonus Is Based On Meeting The Budget. Two Incentives
Exist: Sales People Will Under-Forecast Future Sales And They Have Little Incentive To
Sell More Than The Budget.
This Firm Tries To Use The Budget For Two Functions: Decision Making And
Control. In Deciding On Next Year’s Production Plans, Sales Peoples’ Forecasts Of
Future Sales Are Important. However, These Same Forecasts (After Revision By
Supervisors) Are Used As Part Of The Compensation Scheme To Motivate The Sales
People To Achieve Their Goals. By Using The Budget (Forecasts) As Part Of The
Control System, The Firm Gives Up Some Of The Budget’s Usefulness As A Decision
Making Tool To Set Production Plans. While Senior Managers Might Recognize That
The Sales People’s Forecasts Are Low, They Don’t Know Exactly How Low. This
Introduces More Uncertainty Into Planning For Next Year’s Production.
P 1-6: Solution To Golf Specialties (20 Minutes)
[Average Versus Variable Cost Of An Incremental Order]
a. Given That The Variable Cost Per Head Cover Is 1.10 Euros, The Fixed Cost Per
Week Is:
Ac = Fc / Q + Vc
3.10 = Fc/600 + 1.10 3.50 = Fc/500 + 1.10
Fc = 1,200 Euros Fc = 1,200 Euros
b. The Change In Total Cost If The 100 Unit Kojo Offer Is
Accepted Is: 600 × 3.10 Euros – 500 × 3.50 Euros = 110 Euros
Or, Each Head Cover Has Variable Cost Of 1.10 Euro. Since Kojo Is Willing To
