Copyright © 2023 McGraw Hill Ltd. All rights reserved. Solutions Manual , Chapter 2 1 Solution Manual for Introduction to Managerial Accounting 7CE Peter C. Brewer, Ray H. Garrison, Eric Noreen, Suresh Kalagnanam, Ganesh Vaidyanathan Chapter 1 An Introd uction to Managerial Accounting Solutions to Questions 1-1 Managerial accounting is concer ned 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 , credi tors, 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 motiv ating 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 em phasis 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 conti nuous 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 material s are purchased and units are produced only as needed to meet actual customer demand . Nursedocs © The McGraw -Hill Companies, Inc., 2002. All rights reserved. 2 Introduction to Managerial Accounting, 1st Edition Total quality management (TQM): An approach to continuous improvement that focuses on serving customers and uses teams of front -
line workers to systematically identify an d 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 fu lfill 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 n eeds. 1-7 Pros Funds tied up in maintaining inventor y 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 custome rs 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 manuf acturing 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 behavio ur 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 w aste money and time (scarce resources) trying to protect ourselves. Ethical standards and Codes of C onduct Nursedocs Copyright © 2023 McGraw Hill Ltd. All rights reserved. Solutions Manual , Chapter 2 3 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 Accounting Managerial Accounting a) Preparing budgeted statements of income and financial position for the next year X b) Analyzing the profitability of a new project X c) Preparing the income statement and balance sheet X d) Preparing a weekly performance report for the product manager X e) Costing and pricing a new product X Exercise 1 -2 (LO1 CC1) Planning Implementation Control a) Doing a cost –benefit analysis of buyi ng new planes versus leasing them X b) Estimating the cost of utilities to be incurred during the next quarter X Nursedocs © The McGraw -Hill Companies, Inc., 2002. All rights reserved. 4 Introduction to Managerial Accounting, 1st Edition c) Documenting variances from standard costs of different products X d) Compiling the raw material wastage report for the past month X e) Chang ing procurement process based on an internal audit report X f) Documenting the savings from reductions in raw materials inventory resulting from the adoption of a just -in-time inventory system X Solutions to Problems Problem 1 -1 (LO3 CC5) a) This has eth ical 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 vi olating 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 acco untant, 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 s hould raise this matter to her chief financial officer. b) The main ethical implication s here are the issue s of Professional Behaviour and Objectivity . The code mandates that a member will conduct themselves at all Nursedocs
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 motiv ating 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 em phasis 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 conti nuous 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 material s are purchased and units are produced only as needed to meet actual customer demand . Nursedocs © The McGraw -Hill Companies, Inc., 2002. All rights reserved. 2 Introduction to Managerial Accounting, 1st Edition Total quality management (TQM): An approach to continuous improvement that focuses on serving customers and uses teams of front -
line workers to systematically identify an d 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 fu lfill 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 n eeds. 1-7 Pros Funds tied up in maintaining inventor y 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 custome rs 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 manuf acturing 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 behavio ur 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 w aste money and time (scarce resources) trying to protect ourselves. Ethical standards and Codes of C onduct Nursedocs Copyright © 2023 McGraw Hill Ltd. All rights reserved. Solutions Manual , Chapter 2 3 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 Accounting Managerial Accounting a) Preparing budgeted statements of income and financial position for the next year X b) Analyzing the profitability of a new project X c) Preparing the income statement and balance sheet X d) Preparing a weekly performance report for the product manager X e) Costing and pricing a new product X Exercise 1 -2 (LO1 CC1) Planning Implementation Control a) Doing a cost –benefit analysis of buyi ng new planes versus leasing them X b) Estimating the cost of utilities to be incurred during the next quarter X Nursedocs © The McGraw -Hill Companies, Inc., 2002. All rights reserved. 4 Introduction to Managerial Accounting, 1st Edition c) Documenting variances from standard costs of different products X d) Compiling the raw material wastage report for the past month X e) Chang ing procurement process based on an internal audit report X f) Documenting the savings from reductions in raw materials inventory resulting from the adoption of a just -in-time inventory system X Solutions to Problems Problem 1 -1 (LO3 CC5) a) This has eth ical 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 vi olating 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 acco untant, 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 s hould raise this matter to her chief financial officer. b) The main ethical implication s here are the issue s of Professional Behaviour and Objectivity . The code mandates that a member will conduct themselves at all Nursedocs
