Test Bank For Cost Accounting. A Managerial Emphasis 14th Edition By Charles T. Horngren, Srikant M. Dakar and Madhav Rajan

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, CHAPTER 1 r


THE MANAGER AND MANAGEMENT ACCOUNTING r r r r




See the front matter of this Solutions Manual for suggestions regarding your choices of
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assignment material for each chapter.
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1-1 Management accounting measures, analyzes and reports financial and nonfinancial r r r r r r r r


information that helps managers make decisions to fulfill the goals of an organization. It focuses
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on internal reporting and is not restricted by generally accepted accounting principles (GAAP).
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Financial accounting focuses on reporting to external parties such as investors,r r r r r r r r r r


government agencies, and banks. It measures and records business transactions and provides
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financial statements that are based on generally accepted accounting principles (GAAP).
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Other differences include (1) management accounting emphasizes the future (not the past),
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and (2) management accounting influences the behavior of managers and other employees (rather
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than primarily reporting economic events).
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1-2 Financial accounting is constrained by generally accepted accounting principles.
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Management accounting is not restricted to these principles. The result is that
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 management accounting allows managers to charge interest on owners‘ capital to help r r r r r r r r r r r


judge a division‘s performance, even though such a charge is not allowed under
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GAAP, r


 management accounting can include assets or liabilities (such as ―brand r r r r r r r r r


names‖ developed internally) not recognized under GAAP, and
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 management accounting can use asset or liability measurement rules (such as present r r r r r r r r r r r


values or resale prices) not permitted under GAAP.
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1-3 Management accountants can help to formulate strategy by providing information about r r r r r r r r r r


the sources of competitive advantage—for example, the cost, productivity, or efficiency advantage
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of their company relative to competitors or the premium prices a company can charge relative to
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the costs of adding features that make its products or services distinctive.
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1-4 The business functions in the value chain are
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 Research and development—generating and experimenting with ideas related to new
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products, services, or processes.
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 Design of products and processes—the detailed planning, engineering, and testing of
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products and processes.
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 Production—procuring, transporting, storing and assembling resources to produce r r r r r r r


a product or deliver a service.
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 Marketing—promoting and selling products or services to customers or r r r r r r r r


prospective customers.
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 Distribution—processing orders and shipping products or services to customers. r r r r r r r r


 Customer service—providing after-sales service to customers. r r r r r




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,1-5 Supply chain describes the flow of goods, services, and information from the initial sources
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of materials and services to the delivery of products to consumers, regardless of whether those
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activities occur in the same organization or in other organizations.
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Cost management is most effective when it integrates and coordinates activities across all
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companies in the supply chain as well as across each business function in an individual company‘s
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value chain. Attempts are made to restructure all cost areas to be more cost-effective.
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1-6 ―Management accounting deals only with costs.‖ This statement is misleading at best, and r r r r r r r r r r r r


wrong at worst. Management accounting measures, analyzes, and reports financial and non-
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financial information that helps managers define the organization‘s goals, and make decisions to
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fulfill them. Management accounting also analyzes revenues from products and customers in order
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to assess product and customer profitability. Therefore, while management accounting does use
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cost information, it is only a part of the organization‘s information recorded and analyzed by
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management accountants.
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1-7 Management accountants can help improve quality and achieve timely product deliveries r r r r r r r r r r


by recording and reporting an organization‘s current quality and timeliness levels and by
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analyzing and evaluating the costs and benefits—both financial and non-financial—of new quality
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initiatives such as TQM, relieving bottleneck constraints or providing faster customer service.
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1-8 The five-step decision-making process is (1) identify the problem and uncertainties (2)
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obtain information (3) make predictions about the future (4) make decisions by choosing among
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alternatives and (5) implement the decision, evaluate performance and learn.
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1-9 Planning decisions focus on selecting organization goals and strategies, predicting results r r r r r r r r r r


under various alternative ways of achieving those goals, deciding how to attain the desired goals,
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and communicating the goals and how to attain them to the entire organization.
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Control decisions focus on taking actions that implement the planning decisions, deciding r r r r r r r r r r r


how to evaluate performance, and providing feedback and learning to help future decision making.
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1-10 The three guidelines for management accountants are
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1. Employ a cost-benefit approach. r r r


2. Recognize behavioral and technical considerations. r r r r


3. Apply the notion of ―different costs for different purposes‖. r r r r r r r r




1-11 Agree. A successful management accountant requires general business skills (such as r r r r r r r r r r


understanding the strategy of an organization) and people skills (such as motivating other team
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members) as well as technical skills (such as computer knowledge, calculating costs of products,
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and supporting planning and control decisions).
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, 1-12 The new controller could reply in one or more of the following ways:
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(a) Demonstrate to the plant manager how he or she could make better decisions if the plant r r r r r r r r r r r r r r r


controller was viewed as a resource rather than a deadweight. In a related way, the plant
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controller could show how the plant manager‘s time and resources could be saved by
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viewing the new plant controller as a team member.
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(b) Demonstrate to the plant manager a good knowledge of the technical aspects of the r r r r r r r r r r r r r


plant. This approach may involve doing background reading. It certainly will involve
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spending much time on the plant floor speaking to plant personnel.
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(c) Show the plant manager examples of the new plant controller‘s past successes in
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working with line managers in other plants. Examples could include
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 assistance in preparing the budget, r r r r


 assistance in analyzing problem situations and evaluating financial and
nonfinancial aspects of different alternatives, and
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 assistance in submitting capital budget requests. r r r r r


(d) Seek assistance from the corporate controller to highlight to the plant manager the
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importance of many tasks undertaken by the new plant controller. This approach is a
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last resort but may be necessary in some cases.
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1-13 The controller is the chief management accounting executive. The corporate controller
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reports to the chief financial officer, a staff function. Companies also have business unit
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controllers who support business unit managers or regional controllers who support regional
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managers in major geographic regions.
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1-14 The Institute of Management Accountants (IMA) sets standards of ethical conduct
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for management accountants in the following four areas:
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 Competence
 Confidentiality
 Integrity
 Credibility

1-15 Steps to take when established written policies provide insufficient guidance are
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(a) Discuss the problem with the immediate superior (except when it appears that
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the superior is involved).
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(b) Clarify relevant ethical issues by confidential discussion with an IMA
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Ethics Counselor or other impartial advisor.
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(c) Consult your own attorney as to legal obligations and rights concerning the
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ethical conflicts.
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