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Solution Manual For Fundamentals Of Cost Accounting 7th
Edition By William Lanen Latest Edition 2026
1
Cost Accounting: Information for Decision Making
SOLUTIONS TO REVIEW QUESTIONS
1-1.
Amongthegoals of an organization, a central oneis tocreate and increase value. Costaccounting systems are
designed toprovide information to decision makers in the organization with the information they need to
accomplish this goal. Therefore, the designers of the cost accounting systemneed tounderstand how value
is created in theorganization todesign systems for their organization.
1-2.
Financial accounting is designed toprovide information about thefirmtoexternal users.External users
includeinvestors, creditors, government authorities, regulators, customers, competitors, suppliers, labor
unions, and so on. Cost accounting systems are designed toprovideinformation to internal users (managers).
This difference is important, becauseit affects the designof thesystems. Financial accounting systems are
based on standards or rules. This allows the user to compare theresults of different firms. Managerial
accounting systems do not require rules. Eachfirm is free to develop managerial accounting systems that best
serve the needs of thedecision makers (managers).
1-3.
B Providing cost information forfinancial reportingA
Identifyingthe best store in a chain
Solutions Manual, Chapter 4 1
2 Fundamentals of Cost Accounting, 7e
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
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C Determining which plantto use for production
1-4.
The value chain is theset of activities that transforms rawresources intothegoods andservices end users
purchase andconsume. Thesupply chainincludes theset of firms andindividuals that sellsgoods and
services to thefirm. Thedistribution chain is thesetof firms andindividuals that buysand distributes
goods andservices fromthe firm.
1-5.
The customers of costaccounting are managers, fromplant managers tothe CEO.
1-6.
Value-added activities are activities that customers perceive as addingutility to the goods or servicesthey
purchase. Nonvalue-added activities do not add valuetothegoods or services. By classifying costs this way,
the cost accounting system canhelpthemanager identify areas (processes) that can beimproved, lowering
costs and adding valueto theorganization.
1-7.
Answers will vary, butshould includesome of the following:
Title Major Responsibilities and Major Duties
Chief financial officer (CFO).... Manages entire finance and accounting function
Treasurer................................. Manages liquid assets
• Conducts business with banks andother
financial institutions
• Oversees public issues of stock and debt
Controller................................. Plans and designs information andincentive
systems
Internal auditor ........................ Ensures compliance with laws, regulations, and
company policies andprocedures
• Provides consulting andauditing services withinthe firm
Cost accountant ...................... Records, measures, estimates, andanalyzescosts
• Works with financial andoperational manager to
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
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provide relevant information for decisions
1-8.
The four questions of thecritical thinking framework are:
1. What are therelevant questions (what decisions doI need tomake)?
2. What are thedatarelevant to the analysis and where doI find them?
3. What are theappropriate tools foranalyzing data?
4. How can I effectively andpersuasively communicate the results of my analysis?
1-9.
No. Sarbanes-Oxley is a law and violations of it arelegal issues. Codes of ethics are necessary to help
accountants and managers identify situations that might develop intoethical conflicts, understandwhat they
could doin these situations, andtolearn what todowhen they believe that an ethical violation has occurred.
Solutionsto Critical Analysisand DiscussionQuestions
1-10.
The role of cost accountants is to helpmanage the organization. Part of that role is to report results.
Another part is to designsystems that assist other managers in making decisions to improve performance.
Thisrole requires that accountants understand howvalue is created in their organizations. Identifying and
reporting how the decisions managers make affect valuecreation lead to better decisions.
1-11.
Yes, you should be interested in the efficiency of your customers. The consumer (the customer of the retailers)
is interested in receiving themost value. If oneof the links inthe supply chain is inefficient, thecustomer
may choose to buyfroma different retailer(who might use a different wholesaler).
1-12.
Costs that you could asktobereimbursed might includethefuel, a share of the maintenance costs,
—wear andtear,‖ or depreciation, andinsurance. Toavoid disagreements, it would benecessary to negotiate an
agreement (even if only informally) between you and your friend considering all factors. For example, you
mightagree that she should pay for thegas and any other supplies (e.g., oil) needed on thetrip.
Solutions Manual, Chapter 4 3
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
, Stuvia.com
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Buyand
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If you are going along, you might change the agreement sothat you split these costs. Alternatively, you might
say that because you are going anyway, shecanride along fornothing.
1-13.
Cost accounting provides important information to those whodetermine strategy. If thecost accounting
system provides inaccurate information, theorganization may endup with an unintended strategy, because
managers are making decisions based on faultyinformation.
1-14.
E…ecutive»errormance evaluation s;stems are »esiyne» ror a s»eciric com»an;‘s needs. The systems
should beflexible toadapt to the circumstances that exist in thatcompany. A common set of accounting
principles would tendtoreduce flexibility and usefulness of these systems. If all parties know
theaccounting basis used by the system, theexact rules can be designed in whatever manner the parties
deem appropriate.
1-15.
Although not-for-profit organizations are not seeking to make a profit, they must remainfinancially
viabletoaccomplish their missions. Cost accounting information can help managers of not-for-profit
organizations by highlighting the costs of various activities, identifying sources of revenue, and measuring
performance of managers. In terms of organizational survival, cost accounting information canbejust as
(or more) important for a not-for-profit as for a for-profit firm.
1-16.
Both Goodyear and Pep Boys needs todetermine thecost of tireto determine cost ofgoods sold on the income
statement andinventory amounts on the balance sheet.
Perhaps the biggest difference is that for a retailer, such as Pep Boys, thecost of a tire is what was
paidtothesupplier (Goodyear) for the tire. For Goodyear, the problem is not quiteas simple. Goodyear does
not buy a tire. It buys materials (rubber, for example) andlabor andcombines them in a manufacturing plant.
These resources costmoney and Goodyear needs todetermine what resources went into thetires.
A second, though perhaps less important, difference isthat Goodyear may have sometires that have been started
in the production process but havenot been completed when thefiscal year ends. As a result, Goodyear also
needs todetermine thevalueofthisincomplete work, the work in process.
4 Fundamentals of Cost Accounting, 7e
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
Stuvia.com - The Marketplace to Buy and Sell your Study Material
Solution Manual For Fundamentals Of Cost Accounting 7th
Edition By William Lanen Latest Edition 2026
1
Cost Accounting: Information for Decision Making
SOLUTIONS TO REVIEW QUESTIONS
1-1.
Amongthegoals of an organization, a central oneis tocreate and increase value. Costaccounting systems are
designed toprovide information to decision makers in the organization with the information they need to
accomplish this goal. Therefore, the designers of the cost accounting systemneed tounderstand how value
is created in theorganization todesign systems for their organization.
1-2.
Financial accounting is designed toprovide information about thefirmtoexternal users.External users
includeinvestors, creditors, government authorities, regulators, customers, competitors, suppliers, labor
unions, and so on. Cost accounting systems are designed toprovideinformation to internal users (managers).
This difference is important, becauseit affects the designof thesystems. Financial accounting systems are
based on standards or rules. This allows the user to compare theresults of different firms. Managerial
accounting systems do not require rules. Eachfirm is free to develop managerial accounting systems that best
serve the needs of thedecision makers (managers).
1-3.
B Providing cost information forfinancial reportingA
Identifyingthe best store in a chain
Solutions Manual, Chapter 4 1
2 Fundamentals of Cost Accounting, 7e
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
, Stuvia.com
Stuvia.com-- The
TheMarketplace
MarketplacetotoBuy
Buyand
andSell
Sellyour
yourStudy
StudyMaterial
Material
C Determining which plantto use for production
1-4.
The value chain is theset of activities that transforms rawresources intothegoods andservices end users
purchase andconsume. Thesupply chainincludes theset of firms andindividuals that sellsgoods and
services to thefirm. Thedistribution chain is thesetof firms andindividuals that buysand distributes
goods andservices fromthe firm.
1-5.
The customers of costaccounting are managers, fromplant managers tothe CEO.
1-6.
Value-added activities are activities that customers perceive as addingutility to the goods or servicesthey
purchase. Nonvalue-added activities do not add valuetothegoods or services. By classifying costs this way,
the cost accounting system canhelpthemanager identify areas (processes) that can beimproved, lowering
costs and adding valueto theorganization.
1-7.
Answers will vary, butshould includesome of the following:
Title Major Responsibilities and Major Duties
Chief financial officer (CFO).... Manages entire finance and accounting function
Treasurer................................. Manages liquid assets
• Conducts business with banks andother
financial institutions
• Oversees public issues of stock and debt
Controller................................. Plans and designs information andincentive
systems
Internal auditor ........................ Ensures compliance with laws, regulations, and
company policies andprocedures
• Provides consulting andauditing services withinthe firm
Cost accountant ...................... Records, measures, estimates, andanalyzescosts
• Works with financial andoperational manager to
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
, Stuvia.com
Stuvia.com-- The
TheMarketplace
MarketplacetotoBuy
Buyand
andSell
Sellyour
yourStudy
StudyMaterial
Material
provide relevant information for decisions
1-8.
The four questions of thecritical thinking framework are:
1. What are therelevant questions (what decisions doI need tomake)?
2. What are thedatarelevant to the analysis and where doI find them?
3. What are theappropriate tools foranalyzing data?
4. How can I effectively andpersuasively communicate the results of my analysis?
1-9.
No. Sarbanes-Oxley is a law and violations of it arelegal issues. Codes of ethics are necessary to help
accountants and managers identify situations that might develop intoethical conflicts, understandwhat they
could doin these situations, andtolearn what todowhen they believe that an ethical violation has occurred.
Solutionsto Critical Analysisand DiscussionQuestions
1-10.
The role of cost accountants is to helpmanage the organization. Part of that role is to report results.
Another part is to designsystems that assist other managers in making decisions to improve performance.
Thisrole requires that accountants understand howvalue is created in their organizations. Identifying and
reporting how the decisions managers make affect valuecreation lead to better decisions.
1-11.
Yes, you should be interested in the efficiency of your customers. The consumer (the customer of the retailers)
is interested in receiving themost value. If oneof the links inthe supply chain is inefficient, thecustomer
may choose to buyfroma different retailer(who might use a different wholesaler).
1-12.
Costs that you could asktobereimbursed might includethefuel, a share of the maintenance costs,
—wear andtear,‖ or depreciation, andinsurance. Toavoid disagreements, it would benecessary to negotiate an
agreement (even if only informally) between you and your friend considering all factors. For example, you
mightagree that she should pay for thegas and any other supplies (e.g., oil) needed on thetrip.
Solutions Manual, Chapter 4 3
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
, Stuvia.com
Stuvia.com-- The
TheMarketplace
MarketplacetotoBuy
Buyand
andSell
Sellyour
yourStudy
StudyMaterial
Material
If you are going along, you might change the agreement sothat you split these costs. Alternatively, you might
say that because you are going anyway, shecanride along fornothing.
1-13.
Cost accounting provides important information to those whodetermine strategy. If thecost accounting
system provides inaccurate information, theorganization may endup with an unintended strategy, because
managers are making decisions based on faultyinformation.
1-14.
E…ecutive»errormance evaluation s;stems are »esiyne» ror a s»eciric com»an;‘s needs. The systems
should beflexible toadapt to the circumstances that exist in thatcompany. A common set of accounting
principles would tendtoreduce flexibility and usefulness of these systems. If all parties know
theaccounting basis used by the system, theexact rules can be designed in whatever manner the parties
deem appropriate.
1-15.
Although not-for-profit organizations are not seeking to make a profit, they must remainfinancially
viabletoaccomplish their missions. Cost accounting information can help managers of not-for-profit
organizations by highlighting the costs of various activities, identifying sources of revenue, and measuring
performance of managers. In terms of organizational survival, cost accounting information canbejust as
(or more) important for a not-for-profit as for a for-profit firm.
1-16.
Both Goodyear and Pep Boys needs todetermine thecost of tireto determine cost ofgoods sold on the income
statement andinventory amounts on the balance sheet.
Perhaps the biggest difference is that for a retailer, such as Pep Boys, thecost of a tire is what was
paidtothesupplier (Goodyear) for the tire. For Goodyear, the problem is not quiteas simple. Goodyear does
not buy a tire. It buys materials (rubber, for example) andlabor andcombines them in a manufacturing plant.
These resources costmoney and Goodyear needs todetermine what resources went into thetires.
A second, though perhaps less important, difference isthat Goodyear may have sometires that have been started
in the production process but havenot been completed when thefiscal year ends. As a result, Goodyear also
needs todetermine thevalueofthisincomplete work, the work in process.
4 Fundamentals of Cost Accounting, 7e
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
