SOLUTIONS MANUAL
Horngren's Cost Accounting: A Managerial Emphasis, Canadian Edition,
10th edition
By Srikant M. Datar, Madhav V. Rajan
SC
O
R
EG
U
ID
ES
, Table of Content
The Accountant's Vital Role in Decision Making
An Introduction to Cost Terms and Purposes
Cost–Volume–Profit Analysis
Job Costing
Activity-Based Costing and Management
Master Budget and Responsibility Accounting
SC
Flexible Budgets, Variances, and Management Control: I
Flexible Budgets, Variances, and Management Control: II
Income Effects of Denominator Level on Inventory Valuation
Analysis of Cost Behaviour
O
Decision Making and Relevant Information
Data Analytic Thinking and Prediction
R
Pricing Decisions: Profitability and Cost Management
Strategy, the Balanced Scorecard, and Profitability Analysis
EG
Period Cost Application
Cost Allocation: Joint Products and Byproducts
Revenue and Customer Profitability Analysis
Process Costing
U
Spoilage, Rework, and Scrap
ID
Inventory Cost Management Strategies
Capital Budgeting: Methods of Investment Analysis
Transfer Pricing and Multinational Management Control Systems
ES
Multinational Performance Measurement and Compensation
, CHAPTER 1
THE ACCOUNTANT’S VITAL ROLE IN DECISION MAKING
SHORT-ANSWER QUESTIONS
SC
1-1 Management accounting measures, analyzes, and reports financial and nonfinancial
information to internal managers making internal decisions to improve performance. The reporting
and analyses are not restricted by generally accepted accounting principles (GAAP) based on either
International Financial Reporting Standards (IFRS) or Canadian Accounting Standards for Private
Exterprise (ASPE).
Financial accounting measures, analyzes, and reports primarily financial information to
O
external parties who own the corporate assets, such as investors, government agencies, and banks.
Methods of identification and classification of business transactions, measurement of their
economic effect, analyses, and reporting in financial statements must comply with standards set
by the Chartered Professional Accountants of Canada (CPA Canada).
R
Other differences include (1) management accounting emphasizes the future (not the past),
and (2) management accounting is designed specifically to influence the behaviour of managers
and other employees (rather than primarily reporting economic events).
EG
1-2 In Canada, financial accounting is constrained by GAAP. Companies listed on stock
exchanges must comply with IFRS. Other companies must comply with ASPE when reporting to
external parties. Management accounting is not restricted to these principles. The result is:
• management accountants can charge interest on owners’ capital to help judge a division’s
performance, even though such a charge is not allowed under GAAP
U
• management accountants can classify, measure, and include the value of internally developed
assets and liabilities not recognized under GAAP
• management accountants can use measurement methods of the value of assets or liabilities not
ID
permitted under GAAP
• management accountants can change the method of revenue and expense recognition, which
is not permitted under GAAP, and
• management accountants assess the quality of information provided based on how well it
ES
reflects the economic reality of a real business process, not a standard.
1-3 Management accountants help formulate strategy by identifying relevant information about
the sources of competitive advantage—usually the cost, productivity, or efficiency advantage of
their company relative to competitors. Alternatively, management accountants can analyze the
benefits to customers and the costs to the company of adding features to further customize more
distinctive products or services. These data will assist in setting an appropriate premium price for
distinctive value-added attributes as determined by the customer.
, Instructor’s Solutions Manual for Cost Accounting, Tenth Canadian Edition
1-4 The business functions in the value chain are
• Research and development—generating and experimenting 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—acquiring, coordinating, and assembling resources to produce a product or
SC
deliver a service.
• Marketing—promoting and selling products or services to customers or prospective customers.
• Distribution—delivering products or services to customers.
• Customer service—providing after-sale support to customers.
O
1-5 The “supply chain” is a coordinated flow of goods, services, and information from each
initial source of materials and services to the delivery of products to consumers, whether or not
the supply activities occur in the purchasing or in other organizations.
Cost management is most effective when it integrates and coordinates activities across all
R
suppliers in the supply chain as well as across each business function in the purchasing company’s
value chain. Business functions can be restructured to be more cost-effective.
EG
1-6 This statement is wrong. Management accountants also analyze revenues from products,
services, and customers relative to their costs to assess the profitability of types of products,
services, and customers. Management accountants also examine the business environment and
report relevant information on the intensity of competition. Cost information is only one part of
the relevant internal and external information identified, analyzed, and reported by management
accountants.
U
1-7 Management accountants help a management team identify performance measures that are
important to maintain or increase profitability. Important measures include features, quality, and
ID
timely delivery as determined by customers. For-profit companies use these data to evaluate the
balance of costs and benefits—both financial and nonfinancial—and provide relative assurance
that proposed changes will not impair profitability. Initiatives include TQM, relieving bottleneck
constraints, or providing faster customer service.
ES
1-8 The five-step decision-making process is (1) identify the problem and uncertainties,
(2) obtain relevant information, (3) make predictions about the future, (4) decide on one of the
available alternatives, and (5) implement the decision, evaluate performance, and learn. Often the
most important information required to provide certainty around predictions is missing, which is
why rigorous and disciplined decision making is important to success.
1-9 Planning decisions include (a) selecting organization goals, (b) predicting results under
various alternative ways of achieving those goals, (c) deciding how to attain the desired goals, and
(d) communicating the goals and how to attain them to the entire organization. Good planning
decisions indicate how rigorous and disciplined the management team is at making unbiased
business decisions in the best interests of improving organizational profit.
Horngren's Cost Accounting: A Managerial Emphasis, Canadian Edition,
10th edition
By Srikant M. Datar, Madhav V. Rajan
SC
O
R
EG
U
ID
ES
, Table of Content
The Accountant's Vital Role in Decision Making
An Introduction to Cost Terms and Purposes
Cost–Volume–Profit Analysis
Job Costing
Activity-Based Costing and Management
Master Budget and Responsibility Accounting
SC
Flexible Budgets, Variances, and Management Control: I
Flexible Budgets, Variances, and Management Control: II
Income Effects of Denominator Level on Inventory Valuation
Analysis of Cost Behaviour
O
Decision Making and Relevant Information
Data Analytic Thinking and Prediction
R
Pricing Decisions: Profitability and Cost Management
Strategy, the Balanced Scorecard, and Profitability Analysis
EG
Period Cost Application
Cost Allocation: Joint Products and Byproducts
Revenue and Customer Profitability Analysis
Process Costing
U
Spoilage, Rework, and Scrap
ID
Inventory Cost Management Strategies
Capital Budgeting: Methods of Investment Analysis
Transfer Pricing and Multinational Management Control Systems
ES
Multinational Performance Measurement and Compensation
, CHAPTER 1
THE ACCOUNTANT’S VITAL ROLE IN DECISION MAKING
SHORT-ANSWER QUESTIONS
SC
1-1 Management accounting measures, analyzes, and reports financial and nonfinancial
information to internal managers making internal decisions to improve performance. The reporting
and analyses are not restricted by generally accepted accounting principles (GAAP) based on either
International Financial Reporting Standards (IFRS) or Canadian Accounting Standards for Private
Exterprise (ASPE).
Financial accounting measures, analyzes, and reports primarily financial information to
O
external parties who own the corporate assets, such as investors, government agencies, and banks.
Methods of identification and classification of business transactions, measurement of their
economic effect, analyses, and reporting in financial statements must comply with standards set
by the Chartered Professional Accountants of Canada (CPA Canada).
R
Other differences include (1) management accounting emphasizes the future (not the past),
and (2) management accounting is designed specifically to influence the behaviour of managers
and other employees (rather than primarily reporting economic events).
EG
1-2 In Canada, financial accounting is constrained by GAAP. Companies listed on stock
exchanges must comply with IFRS. Other companies must comply with ASPE when reporting to
external parties. Management accounting is not restricted to these principles. The result is:
• management accountants can charge interest on owners’ capital to help judge a division’s
performance, even though such a charge is not allowed under GAAP
U
• management accountants can classify, measure, and include the value of internally developed
assets and liabilities not recognized under GAAP
• management accountants can use measurement methods of the value of assets or liabilities not
ID
permitted under GAAP
• management accountants can change the method of revenue and expense recognition, which
is not permitted under GAAP, and
• management accountants assess the quality of information provided based on how well it
ES
reflects the economic reality of a real business process, not a standard.
1-3 Management accountants help formulate strategy by identifying relevant information about
the sources of competitive advantage—usually the cost, productivity, or efficiency advantage of
their company relative to competitors. Alternatively, management accountants can analyze the
benefits to customers and the costs to the company of adding features to further customize more
distinctive products or services. These data will assist in setting an appropriate premium price for
distinctive value-added attributes as determined by the customer.
, Instructor’s Solutions Manual for Cost Accounting, Tenth Canadian Edition
1-4 The business functions in the value chain are
• Research and development—generating and experimenting 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—acquiring, coordinating, and assembling resources to produce a product or
SC
deliver a service.
• Marketing—promoting and selling products or services to customers or prospective customers.
• Distribution—delivering products or services to customers.
• Customer service—providing after-sale support to customers.
O
1-5 The “supply chain” is a coordinated flow of goods, services, and information from each
initial source of materials and services to the delivery of products to consumers, whether or not
the supply activities occur in the purchasing or in other organizations.
Cost management is most effective when it integrates and coordinates activities across all
R
suppliers in the supply chain as well as across each business function in the purchasing company’s
value chain. Business functions can be restructured to be more cost-effective.
EG
1-6 This statement is wrong. Management accountants also analyze revenues from products,
services, and customers relative to their costs to assess the profitability of types of products,
services, and customers. Management accountants also examine the business environment and
report relevant information on the intensity of competition. Cost information is only one part of
the relevant internal and external information identified, analyzed, and reported by management
accountants.
U
1-7 Management accountants help a management team identify performance measures that are
important to maintain or increase profitability. Important measures include features, quality, and
ID
timely delivery as determined by customers. For-profit companies use these data to evaluate the
balance of costs and benefits—both financial and nonfinancial—and provide relative assurance
that proposed changes will not impair profitability. Initiatives include TQM, relieving bottleneck
constraints, or providing faster customer service.
ES
1-8 The five-step decision-making process is (1) identify the problem and uncertainties,
(2) obtain relevant information, (3) make predictions about the future, (4) decide on one of the
available alternatives, and (5) implement the decision, evaluate performance, and learn. Often the
most important information required to provide certainty around predictions is missing, which is
why rigorous and disciplined decision making is important to success.
1-9 Planning decisions include (a) selecting organization goals, (b) predicting results under
various alternative ways of achieving those goals, (c) deciding how to attain the desired goals, and
(d) communicating the goals and how to attain them to the entire organization. Good planning
decisions indicate how rigorous and disciplined the management team is at making unbiased
business decisions in the best interests of improving organizational profit.
