,SOLUTION MANUAL FOR Cost Accounting With Integrated Data Analytics,
2nd Edition Farmer
Important Notes
The file organized chapter by chapter.
A sample of selected pages has been provided for preview.
All available appendices and Excel files (if included in the original resources) are
provided.
We continuously update our files to ensure you receive the latest and most accurate
editions.
New editions are added regularly – stay connected for updates!
⚠️Note on Answer Keys: If the answer key is not included within the chapter
questions, you will find the complete answers and solutions at the end of each
chapter.
✅ Why Buy From Us?
📚 Complete & organized chapter-by-chapter – no missing content, no guessing.
⚡ Instant digital delivery – get your file the moment you pay, no waiting.
📅 Always up to date – we track new editions so you always get the latest version.
💬 Friendly support – real humans ready to help, anytime you need us.
🔒 Safe & secure – thousands of satisfied students trust us every semester.
🛡️Our Guarantees
💰 Money-Back Guarantee: Not satisfied? We offer a full refund – no questions asked.
🔄 Wrong File? No Problem: Contact us and we will replace it immediately with the
correct version, free of charge.
⏰ 24/7 Support: We are always here – reach out anytime and expect a fast response.
, Chapter 1
Cost Accounting Has Purpose
Note: the end of chapter brief exercises, exercises, and problems are coded K (knowledge), C
(comprehension), AP (application), AN (analysis), S (synthesize), and E (evaluation) according
to the original Blooms Taxonomy published in 1956.
Assignment Classification Table (By Learning Objective)
Brief
Learning Objectives Questions Exercises Exercises Problems
1. Explore the elements that 1, 2, 3, 4 1, 2, 3, 4, 5, 1, 2, 3, 1, 2, 3, 4
support a company’s 6, 13 12
purpose, as well as your
own.
2. Connect the purpose of cost 5, 6, 7, 13, 7, 8, 9 4, 5, 6, 5, 6
accounting with the role of 14 11
accountants in organizations.
3. Outline the frameworks, 8, 9, 10, 11, 10, 11, 12 7, 8, 9, 7, 8, 9
including ethics, that guide 12 10
the profession.
1-1
© 2026 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 2e, Cost Accounting Has Purpose (For Instructor Use Only)
,Assignment Characteristics Table
Level of Time
Item Description Difficulty (minutes)
E1.1 Identify the mission and vision of each of the Big Four Moderate 15–20
firms and their underlying values.
E1.2 Evaluate a company’s SWOT analysis. Moderate 10–15
E1.3 Explain how a balanced scorecard reveals a company’s Moderate 10–15
strategy.
E1.4 Identify cost accounting skill sets valued by the Big Four. Moderate 10–15
E1.5 Use the decision-making framework to make a personal Moderate 10–15
decision.
E1.6 Use the decision-making framework to make a business Moderate 10–15
decision.
E1.7 Identify IMA opportunities and certification requirements. Simple 10–15
E1.8 Get to know the continuing education requirements for Simple 5–10
the IMA’s flagship certification.
E1.9 Describe the IMA’s Statement of Ethical Professional Moderate 10–15
Practice.
E1.10 Identify the AICPA’s mission and activities. Moderate 15–20
E1.11 Interpret supply chain visualization. Simple 5–10
E1.12 Address conflicts between stated mission, values, and Moderate 10–15
outward behavior.
P1.1 Describe your own personal purpose. Simple 5–10
P1.2 Identify your goals. Simple 5–10
P1.3 Identify strategies to achieve your goals. Simple 5–10
P1.4 Conduct your own personal SWOT analysis. Moderate 10–15
P1.5 Identify data analytics approaches to help solve a Moderate 10–15
business question.
P1.6 Explain the steps in the value chain. Moderate 10–15
P1.7 Evaluate IMA’s Statements on Management Accounting. Moderate 5–10
P1.8 Identify the CPE requirements for CPAs in your state. Moderate 10–15
P1.9 Describe how the NASBA supports the State Boards of Moderate 10-15
1-2
© 2026 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 2e, Cost Accounting Has Purpose (For Instructor Use Only)
, Accountancy.
Case Sort out the issues in an ethical dilemma using IMA’s Moderate 15–20
Statement of Ethical Professional Practice alongside the
decision-making framework.
Answers to Questions
1. A vision reflects what you strive to be (or what an organization strives to be) or what you strive to
achieve by some future date.
In contrast, a mission (i.e., a purpose) is the reason you exist (or an organization exists). Your
mission, or purpose, is what drives you.
A strategy reflects the chosen method(s) and technique(s) to get you to the end goal (the vision).
You can think of a vision as being your destination, a mission (i.e., purpose) as your vehicle (what
drives you!), and a strategy is the road you take to get there. Being aware of these key pieces as
well as how they work together can help you stay motivated and adjust course as needed. By
keeping your end goal in mind, you will be more motivated and driven as you travel the road there.
LO: 1, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, Reflective Thinking, AICPA BC: N/A, AICPA AC: Reporting, AICPA PC:
Communication, IMA: N/A
2. A SWOT analysis is a survey of a company’s internal Strengths and Weaknesses along with its
external Opportunities and Threats. Companies use this type of analysis to evaluate their position
in the market so they can work to capitalize on their strengths and address their weaknesses in an
effort to take advantage of opportunities in the market while also addressing the threats.
In the process of conducting a SWOT analysis, managers often recognize Porter’s Five Forces
among the company’s strengths, weaknesses, opportunities, and threats. The five forces are
customer power, supplier power, threat of substitute products, threat of new entrants, and industry
rivalry.
Through a formal SWOT analysis or a formal evaluation of Porter’s Five Forces, a company will
have a very thorough understanding of where it is positioned in the market and in the industry, which
can help decision-makers determine the best course forward in order to live the company’s mission
and reach its vision.
LO: 1, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, AICPA BC: Strategic Perspective, AICPA AC: Reporting, AICPA PC:
Communication, IMA: Strategy, Planning, & Performance: Enterprise Risk Management
1-3
© 2026 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 2e, Cost Accounting Has Purpose (For Instructor Use Only)
,Questions Chapter 1 (Continued)
3. A balanced scorecard is a performance management tool in which managers can comprehensively
evaluate their organization’s performance. Within the balanced scorecard, four traditional
perspectives are often used (described below). Within each perspective, the company recognizes
its key objectives, key initiatives for each objective, and specific metrics for each objective, using
both financial and non-financial metrics – hence the term “balanced” scorecard. Targets are
specified for each objective, and at the end of the month/quarter/year, managers can compare actual
results against the company’s stated objectives and targets. A balanced scorecard can be
implemented for the entire entity, for sub-units, and/or for individuals.
The four perspectives of a traditional balanced scorecard include:
o Financial perspective – considers the shareholder’s perspective and how metrics like growth,
profit, and risk that impact shareholder value translate into company objectives.
o Customer perspective – considers the customer and includes the metrics that create value
for the customer, while also often measuring customer satisfaction and retention.
o Internal business process perspective – considers processes internal to a company that are
responsible for creating value for the customer and shareholder.
o Learning and growth perspective – considers how an organization supports its people and
infrastructure to drive and maintain new products and service development and growth.
The objectives within each of the four perspectives should be linked such that improvement in more
foundational areas of the scorecard, such as learning and growth or internal business process
perspectives, will lead to expected improvement in customer and financial areas, as well.
LO: 1, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, AICPA BC: Strategic Perspective, Process and Resource Management
Perspectives, AICPA AC: Reporting, Systems and Process Management, AICPA PC: Communication, IMA: Business Acumen & Operations: Quality Management
and Continuous Improvement
4. Health goals are linked to friends/family goals, suggesting that once a basic level of health is
achieved, one can pursue healthy relationships with family and friends.
Friends/family goals are then linked to self-enrichment goals, suggesting once one has healthy
relationships with friends/family, one can pursue self-enrichment goals.
Self-enrichment goals are then linked to career goals, suggesting that once one has self-enrichment
in his or her life, he or she can pursue career goals.
The lower levels are considered more foundational, allowing a person to progressively pursue
higher-level goals.
Responses here will likely vary by student.
A student’s response to the order of the proposed scorecard might be to move the career perspective
a bit lower in the list, with self-enrichment at the top, as an ultimate goal. Others may put certain
social or environmental goals at the very top of their scorecard, suggesting the ultimate reward
would be contributing to world peace, for example.
LO: 1, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Communication, Reflective Thinking, AICPA BC: N/A, AICPA AC: Reporting, AICPA PC: Communication,
IMA: N/A
1-4
© 2026 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 2e, Cost Accounting Has Purpose (For Instructor Use Only)
,Questions Chapter 1 (Continued)
5. Cost accounting and financial accounting differ in their purpose, scope, and reporting as follows:
Cost accounting’s purpose is to support internal decision-making.
Financial accounting’s purpose is to present financial information to external users and decision-
makers, who might be investors, stock analysts, regulators, lenders, suppliers, competitors,
customers, or others.
Cost accounting’s scope is far broader than simply costing products. Cost accountants analyze
activities and transactions of every aspect of an organization’s value chain, from inception of idea
through to sales and customer service.
Cost accounting’s reporting is unlimited, as reports can be arranged and presented in any
reasonable way that supports managers’ needs. Managers’ feedback further modifies the type of
reports created.
Financial accounting’s scope and reporting includes the details, format, and content required by
GAAP or IFRS.
LO: 2, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, AICPA BC: N/A, AICPA AC: Reporting, AICPA PC: Communication, IMA: N/A
6. The main steps of the complete value chain are:
(1) Inception of an idea and its resulting development (R&D) – this is where a company explores
new product and/or service ideas and conducts research on the viability of such an idea.
(2) Design – this is where designers collaborate to find the best possible solution for a new product
idea.
(3) Supply of inputs like direct materials and direct labor – this is where manufacturers procure the
raw materials and labor resources needed in order to produce a given product. This is where
service providers hire laborers to provide the company’s services.
(4) Production – this is where manufacturers actually produce the product, or where service providers
actually provide the service. Much value is added in this key step.
(5) Marketing – this is where organizations of all types provide education to potential customers
about their available products/services, as well as where they make an appeal to customers for
why they need the given product or service.
(6) Distribution – this includes the physical movement of goods to customers, to intermediaries, or
to retail locations.
(7) Customer service – this includes handling post-sale activities, including returns and warranty
support.
While most of these activities work best in this specific order, particularly for manufacturing
companies that would be unable to produce a product without raw materials and labor, it is not set
in stone that they must always be completed in this order. For example, marketing activities may
take place before or during production, and sourcing of raw materials and labor could take place
while designers are fine-tuning the specifications of a product. Also, not all companies participate in
all steps of the value chain. Pure retailers, for example, might not take part in steps 1 and 2.
LO: 2, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, AICPA BC: Process and Resource Management Perspectives, AICPA AC:
Reporting, Systems and Process Management, AICPA PC: Communication, IMA: N/A
1-5
© 2026 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 2e, Cost Accounting Has Purpose (For Instructor Use Only)
,Questions Chapter 1 (Continued)
7. Some decision-making tools available to cost accountants include:
o Break-even analysis – can help managers determine the volume of units to be sold to break
even or to generate a target amount of income.
o Budgeting – can help managers plan and allocate resources to different priorities across the
organization.
o Net present value – can help managers evaluate the viability of different investment
opportunities.
o Contribution margin – can help managers determine the amount left over from each different
type of unit sold that contributes to fixed costs and operating profit.
o Regression – can help managers evaluate which cost driver/s (independent variable/s) best
explains/predicts a mixed cost (dependent variable).
o Segment margin – can help managers determine the profitability of each division within the
company before common or allocated fixed costs are considered.
o Transfer pricing – can help managers determine the viability of inter-departmental sales, and
if viable, the range within which the transfer price should land.
o Variance analysis – can help managers evaluate differences between standard and actual
prices and/or quantities used for key resources, which can facilitate more targeted
investigation for continuous improvement efforts.
o Data analytics – can help managers gain insights from data available, by generating
descriptive, diagnostic, predictive, and/or prescriptive information.
LO: 2, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, Data Analytics, AICPA BC: Process and Resource Management Perspectives,
AICPA AC: Measurement Analysis and Interpretation, Reporting, AICPA PC: Communication, IMA: Reporting & Control: Cost Accounting
1-6
© 2026 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 2e, Cost Accounting Has Purpose (For Instructor Use Only)
,Questions Chapter 1 (Continued)
8. The Sarbanes Oxley Act of 2002 (SOX) has forever changed the accounting profession by
addressing many previous weaknesses in the financial reporting process. While the financial
reporting process is primarily under the purview of financial accountants, there are a few sections
of SOX that are particularly relevant to cost accountants.
Section 302 requires CFOs and CEOs of publicly traded companies to certify the accuracy of their
reported financial information, creating heightened awareness of the significant impacts that
financial information has on a company’s stakeholders. Cost accountants are intimately involved
in, and often directly responsible for, many fundamental business processes reflected in the
company’s financial statements. Specific examples include production and processing costs,
inventory costs, and overhead allocation just to name a few. If cost accountants provide clear,
accurate, and reliable information to their fellow financial accountants, the financial accountants
will feel confident presenting that information to the controller and CFO, in turn, allowing the CFO
and CEO to feel confident signing the financial statements release to external users.
Section 404 requires management of public companies to recognize their responsibility for
establishing internal controls. Further, they are required to provide an assessment of the
effectiveness of those internal controls in their external reporting, as well. Since cost accountants
are often intimately involved in many fundamental business processes that support transactional
reporting and information sharing, cost accountants are often important participants in these
internal control discussions.
Section 406 requires public companies to disclose if they adopted a code of ethics for their senior
officers. Espousing an ethical climate throughout the organization is a key tenet of cost
accounting, thus making this section of SOX relevant to cost accountants, as well.
LO: 3, Bloom: C, Difficulty: Simple, Time: 5-10, AACSB: Knowledge, Communication, AICPA BC: Governance Perspective, AICPA AC: Reporting, AICPA PC:
Professional Behavior, Communication, IMA: Professional Ethics & Values: Legal and Regulatory Requirements
9. The IMA’s key activities areas as it guides the profession include:
o Serving as a thought leader in research and industry best practices.
o Issuing Statements on Management Accounting (SMAs)—publications on best practices
within management accounting.
o Offering the Certified Management Accounting (CMA) credential, which reflects best-in-
class competencies related to organizations’ internal financial management.
o Helping members build a professional network.
o Creating and offering CPE-eligible education programs that help its members improve their
industry knowledge and leadership potential.
o Advocating for the profession, even in a challenging regulatory environment.
The IMA’s mission is to provide a forum for research, practice development, education, knowledge
sharing, and advocacy of the highest ethical and best business practices in management
accounting and finance. Each of the above key activities helps the IMA achieve one or more of the
different facets of its mission.
LO: 3, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, AICPA BC: Governance Perspective, AICPA AC: Reporting, AICPA PC:
Communication, IMA: Business Acumen & Operations: Industry-Specific Knowledge
1-7
© 2026 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 2e, Cost Accounting Has Purpose (For Instructor Use Only)
, Questions Chapter 1 (Continued)
10. The AICPA guides the profession through the following key activities:
o Advocacy – protecting and promoting the profession’s best interests as the national
representative of CPAs before government, regulatory bodies, and other organizations.
o Certification and licensing – setting forth the highest possible level of uniform certification
and licensing standards and promoting and protecting the CPA designation.
o Communications – promoting public awareness of and confidence in the integrity, objectivity,
competence, and professionalism of CPAs.
o Recruitment and education – encouraging individuals to become CPAs and supporting
academic programs that support this effort.
o Standards and performance – establishing professional standards; assisting members in
continually improving their professional conduct, performance, and expertise; and monitoring
its members’ performance to ensure they adhere to current standards and requirements.
The AICPA’s mission is to power the success of global business, CPAs, Chartered Global
Management Accountants (CGMAs), and specialty credentials by providing the most relevant
knowledge, resources, and advocacy, and by protecting the evolving public interest. All of the above
key activities help the AICPA to achieve its mission along one or more fronts.
LO: 3, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, AICPA BC: Governance Perspective, AICPA AC: Reporting, AICPA PC:
Communication, IMA: Professional Ethics & Values: Legal and Regulatory Requirements
1-8
© 2026 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 2e, Cost Accounting Has Purpose (For Instructor Use Only)
2nd Edition Farmer
Important Notes
The file organized chapter by chapter.
A sample of selected pages has been provided for preview.
All available appendices and Excel files (if included in the original resources) are
provided.
We continuously update our files to ensure you receive the latest and most accurate
editions.
New editions are added regularly – stay connected for updates!
⚠️Note on Answer Keys: If the answer key is not included within the chapter
questions, you will find the complete answers and solutions at the end of each
chapter.
✅ Why Buy From Us?
📚 Complete & organized chapter-by-chapter – no missing content, no guessing.
⚡ Instant digital delivery – get your file the moment you pay, no waiting.
📅 Always up to date – we track new editions so you always get the latest version.
💬 Friendly support – real humans ready to help, anytime you need us.
🔒 Safe & secure – thousands of satisfied students trust us every semester.
🛡️Our Guarantees
💰 Money-Back Guarantee: Not satisfied? We offer a full refund – no questions asked.
🔄 Wrong File? No Problem: Contact us and we will replace it immediately with the
correct version, free of charge.
⏰ 24/7 Support: We are always here – reach out anytime and expect a fast response.
, Chapter 1
Cost Accounting Has Purpose
Note: the end of chapter brief exercises, exercises, and problems are coded K (knowledge), C
(comprehension), AP (application), AN (analysis), S (synthesize), and E (evaluation) according
to the original Blooms Taxonomy published in 1956.
Assignment Classification Table (By Learning Objective)
Brief
Learning Objectives Questions Exercises Exercises Problems
1. Explore the elements that 1, 2, 3, 4 1, 2, 3, 4, 5, 1, 2, 3, 1, 2, 3, 4
support a company’s 6, 13 12
purpose, as well as your
own.
2. Connect the purpose of cost 5, 6, 7, 13, 7, 8, 9 4, 5, 6, 5, 6
accounting with the role of 14 11
accountants in organizations.
3. Outline the frameworks, 8, 9, 10, 11, 10, 11, 12 7, 8, 9, 7, 8, 9
including ethics, that guide 12 10
the profession.
1-1
© 2026 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 2e, Cost Accounting Has Purpose (For Instructor Use Only)
,Assignment Characteristics Table
Level of Time
Item Description Difficulty (minutes)
E1.1 Identify the mission and vision of each of the Big Four Moderate 15–20
firms and their underlying values.
E1.2 Evaluate a company’s SWOT analysis. Moderate 10–15
E1.3 Explain how a balanced scorecard reveals a company’s Moderate 10–15
strategy.
E1.4 Identify cost accounting skill sets valued by the Big Four. Moderate 10–15
E1.5 Use the decision-making framework to make a personal Moderate 10–15
decision.
E1.6 Use the decision-making framework to make a business Moderate 10–15
decision.
E1.7 Identify IMA opportunities and certification requirements. Simple 10–15
E1.8 Get to know the continuing education requirements for Simple 5–10
the IMA’s flagship certification.
E1.9 Describe the IMA’s Statement of Ethical Professional Moderate 10–15
Practice.
E1.10 Identify the AICPA’s mission and activities. Moderate 15–20
E1.11 Interpret supply chain visualization. Simple 5–10
E1.12 Address conflicts between stated mission, values, and Moderate 10–15
outward behavior.
P1.1 Describe your own personal purpose. Simple 5–10
P1.2 Identify your goals. Simple 5–10
P1.3 Identify strategies to achieve your goals. Simple 5–10
P1.4 Conduct your own personal SWOT analysis. Moderate 10–15
P1.5 Identify data analytics approaches to help solve a Moderate 10–15
business question.
P1.6 Explain the steps in the value chain. Moderate 10–15
P1.7 Evaluate IMA’s Statements on Management Accounting. Moderate 5–10
P1.8 Identify the CPE requirements for CPAs in your state. Moderate 10–15
P1.9 Describe how the NASBA supports the State Boards of Moderate 10-15
1-2
© 2026 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 2e, Cost Accounting Has Purpose (For Instructor Use Only)
, Accountancy.
Case Sort out the issues in an ethical dilemma using IMA’s Moderate 15–20
Statement of Ethical Professional Practice alongside the
decision-making framework.
Answers to Questions
1. A vision reflects what you strive to be (or what an organization strives to be) or what you strive to
achieve by some future date.
In contrast, a mission (i.e., a purpose) is the reason you exist (or an organization exists). Your
mission, or purpose, is what drives you.
A strategy reflects the chosen method(s) and technique(s) to get you to the end goal (the vision).
You can think of a vision as being your destination, a mission (i.e., purpose) as your vehicle (what
drives you!), and a strategy is the road you take to get there. Being aware of these key pieces as
well as how they work together can help you stay motivated and adjust course as needed. By
keeping your end goal in mind, you will be more motivated and driven as you travel the road there.
LO: 1, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, Reflective Thinking, AICPA BC: N/A, AICPA AC: Reporting, AICPA PC:
Communication, IMA: N/A
2. A SWOT analysis is a survey of a company’s internal Strengths and Weaknesses along with its
external Opportunities and Threats. Companies use this type of analysis to evaluate their position
in the market so they can work to capitalize on their strengths and address their weaknesses in an
effort to take advantage of opportunities in the market while also addressing the threats.
In the process of conducting a SWOT analysis, managers often recognize Porter’s Five Forces
among the company’s strengths, weaknesses, opportunities, and threats. The five forces are
customer power, supplier power, threat of substitute products, threat of new entrants, and industry
rivalry.
Through a formal SWOT analysis or a formal evaluation of Porter’s Five Forces, a company will
have a very thorough understanding of where it is positioned in the market and in the industry, which
can help decision-makers determine the best course forward in order to live the company’s mission
and reach its vision.
LO: 1, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, AICPA BC: Strategic Perspective, AICPA AC: Reporting, AICPA PC:
Communication, IMA: Strategy, Planning, & Performance: Enterprise Risk Management
1-3
© 2026 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 2e, Cost Accounting Has Purpose (For Instructor Use Only)
,Questions Chapter 1 (Continued)
3. A balanced scorecard is a performance management tool in which managers can comprehensively
evaluate their organization’s performance. Within the balanced scorecard, four traditional
perspectives are often used (described below). Within each perspective, the company recognizes
its key objectives, key initiatives for each objective, and specific metrics for each objective, using
both financial and non-financial metrics – hence the term “balanced” scorecard. Targets are
specified for each objective, and at the end of the month/quarter/year, managers can compare actual
results against the company’s stated objectives and targets. A balanced scorecard can be
implemented for the entire entity, for sub-units, and/or for individuals.
The four perspectives of a traditional balanced scorecard include:
o Financial perspective – considers the shareholder’s perspective and how metrics like growth,
profit, and risk that impact shareholder value translate into company objectives.
o Customer perspective – considers the customer and includes the metrics that create value
for the customer, while also often measuring customer satisfaction and retention.
o Internal business process perspective – considers processes internal to a company that are
responsible for creating value for the customer and shareholder.
o Learning and growth perspective – considers how an organization supports its people and
infrastructure to drive and maintain new products and service development and growth.
The objectives within each of the four perspectives should be linked such that improvement in more
foundational areas of the scorecard, such as learning and growth or internal business process
perspectives, will lead to expected improvement in customer and financial areas, as well.
LO: 1, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, AICPA BC: Strategic Perspective, Process and Resource Management
Perspectives, AICPA AC: Reporting, Systems and Process Management, AICPA PC: Communication, IMA: Business Acumen & Operations: Quality Management
and Continuous Improvement
4. Health goals are linked to friends/family goals, suggesting that once a basic level of health is
achieved, one can pursue healthy relationships with family and friends.
Friends/family goals are then linked to self-enrichment goals, suggesting once one has healthy
relationships with friends/family, one can pursue self-enrichment goals.
Self-enrichment goals are then linked to career goals, suggesting that once one has self-enrichment
in his or her life, he or she can pursue career goals.
The lower levels are considered more foundational, allowing a person to progressively pursue
higher-level goals.
Responses here will likely vary by student.
A student’s response to the order of the proposed scorecard might be to move the career perspective
a bit lower in the list, with self-enrichment at the top, as an ultimate goal. Others may put certain
social or environmental goals at the very top of their scorecard, suggesting the ultimate reward
would be contributing to world peace, for example.
LO: 1, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Communication, Reflective Thinking, AICPA BC: N/A, AICPA AC: Reporting, AICPA PC: Communication,
IMA: N/A
1-4
© 2026 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 2e, Cost Accounting Has Purpose (For Instructor Use Only)
,Questions Chapter 1 (Continued)
5. Cost accounting and financial accounting differ in their purpose, scope, and reporting as follows:
Cost accounting’s purpose is to support internal decision-making.
Financial accounting’s purpose is to present financial information to external users and decision-
makers, who might be investors, stock analysts, regulators, lenders, suppliers, competitors,
customers, or others.
Cost accounting’s scope is far broader than simply costing products. Cost accountants analyze
activities and transactions of every aspect of an organization’s value chain, from inception of idea
through to sales and customer service.
Cost accounting’s reporting is unlimited, as reports can be arranged and presented in any
reasonable way that supports managers’ needs. Managers’ feedback further modifies the type of
reports created.
Financial accounting’s scope and reporting includes the details, format, and content required by
GAAP or IFRS.
LO: 2, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, AICPA BC: N/A, AICPA AC: Reporting, AICPA PC: Communication, IMA: N/A
6. The main steps of the complete value chain are:
(1) Inception of an idea and its resulting development (R&D) – this is where a company explores
new product and/or service ideas and conducts research on the viability of such an idea.
(2) Design – this is where designers collaborate to find the best possible solution for a new product
idea.
(3) Supply of inputs like direct materials and direct labor – this is where manufacturers procure the
raw materials and labor resources needed in order to produce a given product. This is where
service providers hire laborers to provide the company’s services.
(4) Production – this is where manufacturers actually produce the product, or where service providers
actually provide the service. Much value is added in this key step.
(5) Marketing – this is where organizations of all types provide education to potential customers
about their available products/services, as well as where they make an appeal to customers for
why they need the given product or service.
(6) Distribution – this includes the physical movement of goods to customers, to intermediaries, or
to retail locations.
(7) Customer service – this includes handling post-sale activities, including returns and warranty
support.
While most of these activities work best in this specific order, particularly for manufacturing
companies that would be unable to produce a product without raw materials and labor, it is not set
in stone that they must always be completed in this order. For example, marketing activities may
take place before or during production, and sourcing of raw materials and labor could take place
while designers are fine-tuning the specifications of a product. Also, not all companies participate in
all steps of the value chain. Pure retailers, for example, might not take part in steps 1 and 2.
LO: 2, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, AICPA BC: Process and Resource Management Perspectives, AICPA AC:
Reporting, Systems and Process Management, AICPA PC: Communication, IMA: N/A
1-5
© 2026 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 2e, Cost Accounting Has Purpose (For Instructor Use Only)
,Questions Chapter 1 (Continued)
7. Some decision-making tools available to cost accountants include:
o Break-even analysis – can help managers determine the volume of units to be sold to break
even or to generate a target amount of income.
o Budgeting – can help managers plan and allocate resources to different priorities across the
organization.
o Net present value – can help managers evaluate the viability of different investment
opportunities.
o Contribution margin – can help managers determine the amount left over from each different
type of unit sold that contributes to fixed costs and operating profit.
o Regression – can help managers evaluate which cost driver/s (independent variable/s) best
explains/predicts a mixed cost (dependent variable).
o Segment margin – can help managers determine the profitability of each division within the
company before common or allocated fixed costs are considered.
o Transfer pricing – can help managers determine the viability of inter-departmental sales, and
if viable, the range within which the transfer price should land.
o Variance analysis – can help managers evaluate differences between standard and actual
prices and/or quantities used for key resources, which can facilitate more targeted
investigation for continuous improvement efforts.
o Data analytics – can help managers gain insights from data available, by generating
descriptive, diagnostic, predictive, and/or prescriptive information.
LO: 2, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, Data Analytics, AICPA BC: Process and Resource Management Perspectives,
AICPA AC: Measurement Analysis and Interpretation, Reporting, AICPA PC: Communication, IMA: Reporting & Control: Cost Accounting
1-6
© 2026 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 2e, Cost Accounting Has Purpose (For Instructor Use Only)
,Questions Chapter 1 (Continued)
8. The Sarbanes Oxley Act of 2002 (SOX) has forever changed the accounting profession by
addressing many previous weaknesses in the financial reporting process. While the financial
reporting process is primarily under the purview of financial accountants, there are a few sections
of SOX that are particularly relevant to cost accountants.
Section 302 requires CFOs and CEOs of publicly traded companies to certify the accuracy of their
reported financial information, creating heightened awareness of the significant impacts that
financial information has on a company’s stakeholders. Cost accountants are intimately involved
in, and often directly responsible for, many fundamental business processes reflected in the
company’s financial statements. Specific examples include production and processing costs,
inventory costs, and overhead allocation just to name a few. If cost accountants provide clear,
accurate, and reliable information to their fellow financial accountants, the financial accountants
will feel confident presenting that information to the controller and CFO, in turn, allowing the CFO
and CEO to feel confident signing the financial statements release to external users.
Section 404 requires management of public companies to recognize their responsibility for
establishing internal controls. Further, they are required to provide an assessment of the
effectiveness of those internal controls in their external reporting, as well. Since cost accountants
are often intimately involved in many fundamental business processes that support transactional
reporting and information sharing, cost accountants are often important participants in these
internal control discussions.
Section 406 requires public companies to disclose if they adopted a code of ethics for their senior
officers. Espousing an ethical climate throughout the organization is a key tenet of cost
accounting, thus making this section of SOX relevant to cost accountants, as well.
LO: 3, Bloom: C, Difficulty: Simple, Time: 5-10, AACSB: Knowledge, Communication, AICPA BC: Governance Perspective, AICPA AC: Reporting, AICPA PC:
Professional Behavior, Communication, IMA: Professional Ethics & Values: Legal and Regulatory Requirements
9. The IMA’s key activities areas as it guides the profession include:
o Serving as a thought leader in research and industry best practices.
o Issuing Statements on Management Accounting (SMAs)—publications on best practices
within management accounting.
o Offering the Certified Management Accounting (CMA) credential, which reflects best-in-
class competencies related to organizations’ internal financial management.
o Helping members build a professional network.
o Creating and offering CPE-eligible education programs that help its members improve their
industry knowledge and leadership potential.
o Advocating for the profession, even in a challenging regulatory environment.
The IMA’s mission is to provide a forum for research, practice development, education, knowledge
sharing, and advocacy of the highest ethical and best business practices in management
accounting and finance. Each of the above key activities helps the IMA achieve one or more of the
different facets of its mission.
LO: 3, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, AICPA BC: Governance Perspective, AICPA AC: Reporting, AICPA PC:
Communication, IMA: Business Acumen & Operations: Industry-Specific Knowledge
1-7
© 2026 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 2e, Cost Accounting Has Purpose (For Instructor Use Only)
, Questions Chapter 1 (Continued)
10. The AICPA guides the profession through the following key activities:
o Advocacy – protecting and promoting the profession’s best interests as the national
representative of CPAs before government, regulatory bodies, and other organizations.
o Certification and licensing – setting forth the highest possible level of uniform certification
and licensing standards and promoting and protecting the CPA designation.
o Communications – promoting public awareness of and confidence in the integrity, objectivity,
competence, and professionalism of CPAs.
o Recruitment and education – encouraging individuals to become CPAs and supporting
academic programs that support this effort.
o Standards and performance – establishing professional standards; assisting members in
continually improving their professional conduct, performance, and expertise; and monitoring
its members’ performance to ensure they adhere to current standards and requirements.
The AICPA’s mission is to power the success of global business, CPAs, Chartered Global
Management Accountants (CGMAs), and specialty credentials by providing the most relevant
knowledge, resources, and advocacy, and by protecting the evolving public interest. All of the above
key activities help the AICPA to achieve its mission along one or more fronts.
LO: 3, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Knowledge, Communication, AICPA BC: Governance Perspective, AICPA AC: Reporting, AICPA PC:
Communication, IMA: Professional Ethics & Values: Legal and Regulatory Requirements
1-8
© 2026 John Wiley & Sons, Inc. or the author, All rights reserved. Farmer, Cost Accounting, 2e, Cost Accounting Has Purpose (For Instructor Use Only)
