SOLUTION MANUAL FOR
Fundamentals Of Cost Accounting 7th Edition William
Lanen
1
Cost Accounting: Information for Decision
Making
Solutions to Review Questions
1-1.
Among the goals of an organization, a central one is to create and increase value. Cost
accounting systems are designed to provide information to decision makers in the
organization with the information they need to accomplish this goal. Therefore, the
designers of the cost accounting system need to understand how value is created in the
organization to design systems for their organization.
1-2.
Financial accounting is designed to provide information about the firm to external users.
External users include investors, creditors, government authorities, regulators,
customers, competitors, suppliers, labor unions, and so on. Cost accounting systems
are designed to provide information to internal users (managers).
This difference is important, because it affects the design of the systems. Financial
accounting systems are based on standards or rules. This allows the user to compare
the results of different firms. Managerial accounting systems do not require rules. Each
firm is free to develop managerial accounting systems that best serve the needs of the
decision makers (managers).
1-3.
B Providing cost information for financial reporting
A Identifying the best store in a chain
Solutions Manual, Chapter 4 1
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
,C Determining which plant to use for production
1-4.
The value chain is the set of activities that transforms raw resources into the goods and
services end users purchase and consume. The supply chain includes the set of firms
and individuals that sells goods and services to the firm. The distribution chain is the set
of firms and individuals that buys and distributes goods and services from the firm.
1-5.
The customers of cost accounting are managers, from plant managers to the CEO.
1-6.
Value-added activities are activities that customers perceive as adding utility to the
goods or services they purchase. Nonvalue-added activities do not add value to the
goods or services. By classifying costs this way, the cost accounting system can help
the manager identify areas (processes) that can be improved, lowering costs and
adding value to the organization.
1-7.
Answers will vary, but should include some 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 and other
financial institutions
Oversees public issues of stock and debt
Controller................................. Plans and designs information and incentive
systems
Internal auditor ........................ Ensures compliance with laws, regulations, and
company policies and procedures
Provides consulting and auditing services within
the firm
Cost accountant ...................... Records, measures, estimates, and analyzes
costs
Works with financial and operational manager to
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.
, provide relevant information for decisions
1-8.
The ffour fquestions fof fthe fcritical fthinking fframework fare:
1. What fare fthe frelevant fquestions f(what fdecisions fdo fI fneed fto fmake)?
2. What fare fthe fdata frelevant fto fthe fanalysis fand fwhere fdo fI ffind fthem?
3. What fare fthe fappropriate ftools ffor fanalyzing fdata?
4. How fcan fI feffectively fand fpersuasively fcommunicate fthe fresults fof fmy fanalysis?
1-9.
No. fSarbanes-Oxley fis fa flaw fand fviolations fof fit fare flegal fissues. fCodes fof fethics fare
f necessary fto fhelp faccountants fand fmanagers fidentify fsituations fthat fmight fdevelop
finto f ethical fconflicts, funderstand fwhat fthey fcould fdo fin fthese fsituations, fand fto flearn
fwhat fto f do fwhen fthey fbelieve fthat fan fethical f violation fhas foccurred.
Solutions fto fCritical fAnalysis fand fDiscussion fQuestions
1-10.
The frole fof fcost faccountants fis fto fhelp fmanage fthe forganization. fPart fof fthat frole fis
fto f report fresults. fAnother fpart fis fto fdesign fsystems fthat fassist fother fmanagers fin
fmaking f decisions fto fimprove fperformance. fThis frole frequires fthat faccountants
funderstand fhow f value fis fcreated fin ftheir forganizations. f Identifying fand freporting
fhow fthe fdecisions f managers fmake faffect fvalue fcreation flead fto fbetter fdecisions.
1-11.
Yes, fyou fshould fbe finterested fin fthe fefficiency fof fyour fcustomers. fThe fconsumer f(the
f customer fof fthe fretailers) fis finterested fin freceiving fthe fmost fvalue. fIf fone fof fthe flinks
fin f the fsupply fchain fis finefficient, fthe fcustomer f may fchoose fto fbuy ffrom fa fdifferent
fretailer f (who fmight fuse fa fdifferent f wholesaler).
1-12.
Costs fthat fyou fcould fask fto fbe freimbursed fmight finclude fthe ffuel, fa fshare fof fthe
f maintenance fcosts, f―wear fand ftear,‖ for fdepreciation, fand finsurance. fTo favoid
f disagreements, fit fwould fbe fnecessary fto fnegotiate fan fagreement f(even fif fonly
f informally) fbetween fyou fand fyour ffriend fconsidering fall ffactors. fFor fexample, fyou
fmight f agree fthat fshe fshould fpay ffor fthe fgas fand fany fother fsupplies f(e.g., foil)
fneeded fon fthe f trip.
Solutions Manual, Chapter 4 3
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
, If fyou fare fgoing falong, fyou fmight fchange fthe fagreement fso fthat fyou fsplit fthese
fcosts. f Alternatively, fyou fmight fsay fthat fbecause fyou fare fgoing fanyway, fshe fcan fride
falong ffor f nothing.
1-13.
Cost faccounting fprovides fimportant finformation fto fthose fwho fdetermine fstrategy. fIf
fthe f cost faccounting fsystem fprovides finaccurate finformation, fthe f organization fmay
fend fup f with fan funintended fstrategy, fbecause fmanagers fare fmaking fdecisions
fbased fon ffaulty f information.
1-14.
Executive fperformance fevaluation fsystems fare fdesigned ffor fa fspecific fcompany‘s
f needs. fThe fsystems fshould fbe fflexible fto fadapt fto fthe fcircumstances fthat fexist fin
fthat f company. fA fcommon fset fof faccounting fprinciples fwould ftend fto freduce
fflexibility fand f usefulness fof fthese fsystems. fIf fall fparties fknow fthe faccounting fbasis
fused fby fthe f system, fthe fexact frules fcan fbe fdesigned fin fwhatever fmanner fthe
fparties fdeem f appropriate.
1-15.
Although fnot-for-profit forganizations fare fnot fseeking fto fmake fa fprofit, fthey fmust
fremain f financially fviable fto faccomplish ftheir fmissions. fCost faccounting finformation
fcan fhelp f managers fof fnot-for-profit forganizations fby fhighlighting f the fcosts fof fvarious
factivities, f identifying fsources fof frevenue, fand fmeasuring fperformance fof fmanagers.
fIn fterms fof f organizational f survival, fcost faccounting finformation fcan fbe fjust fas f(or
fmore) fimportant f for fa fnot-for-profit fas ffor fa ffor-profit ffirm.
1-16.
Both fGoodyear fand fPep fBoys fneeds fto fdetermine fthe fcost fof ftire fto fdetermine fcost
fof f goods fsold fon fthe fincome fstatement fand finventory famounts fon fthe fbalance
fsheet.
Perhaps fthe fbiggest fdifference fis fthat ffor fa fretailer, fsuch fas fPep fBoys, fthe fcost fof fa
ftire f is fwhat fwas fpaid fto fthe fsupplier f(Goodyear) ffor fthe ftire. fFor fGoodyear, fthe
fproblem fis f not fquite fas fsimple. fGoodyear fdoes fnot fbuy fa ftire. fIt fbuys fmaterials
f(rubber, ffor f example) fand flabor fand fcombines fthem fin fa fmanufacturing fplant. f These
fresources fcost f money fand fGoodyear fneeds fto fdetermine fwhat fresources fwent finto
fthe ftires.
A fsecond, fthough fperhaps fless fimportant, fdifference fis fthat fGoodyear fmay fhave
fsome f tires fthat fhave fbeen fstarted fin fthe fproduction fprocess fbut fhave fnot fbeen
fcompleted f when fthe ffiscal f year fends. fAs fa fresult, fGoodyear falso fneeds fto
fdetermine fthe fvalue fof f this fincomplete fwork, fthe fwork fin fprocess.
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.
Fundamentals Of Cost Accounting 7th Edition William
Lanen
1
Cost Accounting: Information for Decision
Making
Solutions to Review Questions
1-1.
Among the goals of an organization, a central one is to create and increase value. Cost
accounting systems are designed to provide information to decision makers in the
organization with the information they need to accomplish this goal. Therefore, the
designers of the cost accounting system need to understand how value is created in the
organization to design systems for their organization.
1-2.
Financial accounting is designed to provide information about the firm to external users.
External users include investors, creditors, government authorities, regulators,
customers, competitors, suppliers, labor unions, and so on. Cost accounting systems
are designed to provide information to internal users (managers).
This difference is important, because it affects the design of the systems. Financial
accounting systems are based on standards or rules. This allows the user to compare
the results of different firms. Managerial accounting systems do not require rules. Each
firm is free to develop managerial accounting systems that best serve the needs of the
decision makers (managers).
1-3.
B Providing cost information for financial reporting
A Identifying the best store in a chain
Solutions Manual, Chapter 4 1
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
,C Determining which plant to use for production
1-4.
The value chain is the set of activities that transforms raw resources into the goods and
services end users purchase and consume. The supply chain includes the set of firms
and individuals that sells goods and services to the firm. The distribution chain is the set
of firms and individuals that buys and distributes goods and services from the firm.
1-5.
The customers of cost accounting are managers, from plant managers to the CEO.
1-6.
Value-added activities are activities that customers perceive as adding utility to the
goods or services they purchase. Nonvalue-added activities do not add value to the
goods or services. By classifying costs this way, the cost accounting system can help
the manager identify areas (processes) that can be improved, lowering costs and
adding value to the organization.
1-7.
Answers will vary, but should include some 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 and other
financial institutions
Oversees public issues of stock and debt
Controller................................. Plans and designs information and incentive
systems
Internal auditor ........................ Ensures compliance with laws, regulations, and
company policies and procedures
Provides consulting and auditing services within
the firm
Cost accountant ...................... Records, measures, estimates, and analyzes
costs
Works with financial and operational manager to
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.
, provide relevant information for decisions
1-8.
The ffour fquestions fof fthe fcritical fthinking fframework fare:
1. What fare fthe frelevant fquestions f(what fdecisions fdo fI fneed fto fmake)?
2. What fare fthe fdata frelevant fto fthe fanalysis fand fwhere fdo fI ffind fthem?
3. What fare fthe fappropriate ftools ffor fanalyzing fdata?
4. How fcan fI feffectively fand fpersuasively fcommunicate fthe fresults fof fmy fanalysis?
1-9.
No. fSarbanes-Oxley fis fa flaw fand fviolations fof fit fare flegal fissues. fCodes fof fethics fare
f necessary fto fhelp faccountants fand fmanagers fidentify fsituations fthat fmight fdevelop
finto f ethical fconflicts, funderstand fwhat fthey fcould fdo fin fthese fsituations, fand fto flearn
fwhat fto f do fwhen fthey fbelieve fthat fan fethical f violation fhas foccurred.
Solutions fto fCritical fAnalysis fand fDiscussion fQuestions
1-10.
The frole fof fcost faccountants fis fto fhelp fmanage fthe forganization. fPart fof fthat frole fis
fto f report fresults. fAnother fpart fis fto fdesign fsystems fthat fassist fother fmanagers fin
fmaking f decisions fto fimprove fperformance. fThis frole frequires fthat faccountants
funderstand fhow f value fis fcreated fin ftheir forganizations. f Identifying fand freporting
fhow fthe fdecisions f managers fmake faffect fvalue fcreation flead fto fbetter fdecisions.
1-11.
Yes, fyou fshould fbe finterested fin fthe fefficiency fof fyour fcustomers. fThe fconsumer f(the
f customer fof fthe fretailers) fis finterested fin freceiving fthe fmost fvalue. fIf fone fof fthe flinks
fin f the fsupply fchain fis finefficient, fthe fcustomer f may fchoose fto fbuy ffrom fa fdifferent
fretailer f (who fmight fuse fa fdifferent f wholesaler).
1-12.
Costs fthat fyou fcould fask fto fbe freimbursed fmight finclude fthe ffuel, fa fshare fof fthe
f maintenance fcosts, f―wear fand ftear,‖ for fdepreciation, fand finsurance. fTo favoid
f disagreements, fit fwould fbe fnecessary fto fnegotiate fan fagreement f(even fif fonly
f informally) fbetween fyou fand fyour ffriend fconsidering fall ffactors. fFor fexample, fyou
fmight f agree fthat fshe fshould fpay ffor fthe fgas fand fany fother fsupplies f(e.g., foil)
fneeded fon fthe f trip.
Solutions Manual, Chapter 4 3
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
, If fyou fare fgoing falong, fyou fmight fchange fthe fagreement fso fthat fyou fsplit fthese
fcosts. f Alternatively, fyou fmight fsay fthat fbecause fyou fare fgoing fanyway, fshe fcan fride
falong ffor f nothing.
1-13.
Cost faccounting fprovides fimportant finformation fto fthose fwho fdetermine fstrategy. fIf
fthe f cost faccounting fsystem fprovides finaccurate finformation, fthe f organization fmay
fend fup f with fan funintended fstrategy, fbecause fmanagers fare fmaking fdecisions
fbased fon ffaulty f information.
1-14.
Executive fperformance fevaluation fsystems fare fdesigned ffor fa fspecific fcompany‘s
f needs. fThe fsystems fshould fbe fflexible fto fadapt fto fthe fcircumstances fthat fexist fin
fthat f company. fA fcommon fset fof faccounting fprinciples fwould ftend fto freduce
fflexibility fand f usefulness fof fthese fsystems. fIf fall fparties fknow fthe faccounting fbasis
fused fby fthe f system, fthe fexact frules fcan fbe fdesigned fin fwhatever fmanner fthe
fparties fdeem f appropriate.
1-15.
Although fnot-for-profit forganizations fare fnot fseeking fto fmake fa fprofit, fthey fmust
fremain f financially fviable fto faccomplish ftheir fmissions. fCost faccounting finformation
fcan fhelp f managers fof fnot-for-profit forganizations fby fhighlighting f the fcosts fof fvarious
factivities, f identifying fsources fof frevenue, fand fmeasuring fperformance fof fmanagers.
fIn fterms fof f organizational f survival, fcost faccounting finformation fcan fbe fjust fas f(or
fmore) fimportant f for fa fnot-for-profit fas ffor fa ffor-profit ffirm.
1-16.
Both fGoodyear fand fPep fBoys fneeds fto fdetermine fthe fcost fof ftire fto fdetermine fcost
fof f goods fsold fon fthe fincome fstatement fand finventory famounts fon fthe fbalance
fsheet.
Perhaps fthe fbiggest fdifference fis fthat ffor fa fretailer, fsuch fas fPep fBoys, fthe fcost fof fa
ftire f is fwhat fwas fpaid fto fthe fsupplier f(Goodyear) ffor fthe ftire. fFor fGoodyear, fthe
fproblem fis f not fquite fas fsimple. fGoodyear fdoes fnot fbuy fa ftire. fIt fbuys fmaterials
f(rubber, ffor f example) fand flabor fand fcombines fthem fin fa fmanufacturing fplant. f These
fresources fcost f money fand fGoodyear fneeds fto fdetermine fwhat fresources fwent finto
fthe ftires.
A fsecond, fthough fperhaps fless fimportant, fdifference fis fthat fGoodyear fmay fhave
fsome f tires fthat fhave fbeen fstarted fin fthe fproduction fprocess fbut fhave fnot fbeen
fcompleted f when fthe ffiscal f year fends. fAs fa fresult, fGoodyear falso fneeds fto
fdetermine fthe fvalue fof f this fincomplete fwork, fthe fwork fin fprocess.
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.
