,Solution manual for Managerial Accounting The
Cornerstone of Business Decision Making , 8th
Edition Maryanne M. Mowen
Notes
1- The file is chapter after chapter.
2- We have shown you 10 or five pages.
3- The file contains all Appendix and Excel
sheet if it exists.
4- We have all what you need, we make
update at every time. There are many new
editions waiting you.
5- If you think you purchased the wrong file
You can contact us at every time, we can
replace it with true one.
Our email:
, INTRODUCTION TO MANAGERIAL
1 ACCOUNTING
DISCUSSION QUESTIONS
1. Managerial accounting provides accounting information for internal users in a firm. Specifically, managerial
accounting identifies, collects, measures, classifies, and reports financial and nonfinancial information that is
useful to internal users in planning, controlling, and decision making. Managerial accounting also has no
mandatory rules, emphasizes the future, and is multidisciplinary.
2. The three broad objectives of managerial accounting are to provide information for planning, controlling, and
decision making.
3. The users of managerial accounting information are generally managers and other employees of a firm.
Managerial accounting information is typically not provided to outsiders but may be in selected cases. For
example, a bank may require budgeting information for the next few years before agreeing to grant a loan.
4. A managerial accounting system typically provides both financial and nonfinancial information. For example,
financial information on cost of production is tracked. Other information, such as the number of warranty
returns, may also be tracked by the management information system.
5. Controlling involves comparing the expected performance with the actual performance to see what
differences, if any, exist.
6. Planning occurs first. Planning requires setting objectives and identifying the means of achieving those
objectives. Then, the results of the plan are compared with the plan, which is called controlling. Clearly, it is
also feedback, in that any impediments or unexpected occurrences are noted. This feedback is then used to
develop the plan for the next period.
7. Managerial accounting is internally focused, does not follow mandatory rules, keeps track of both financial
and nonfinancial information, emphasizes the future, and relies on a broad range of disciplines. Financial
accounting, on the other hand, is externally focused, follows externally imposed rules (such as GAAP), has a
historical orientation, and provides information about the company as a whole.
8. Managerial accountants have had to broaden their focus beyond simple financial reporting to include the
gathering of information on all types of costs and of the value of the product or service to customers. These
broader costs are used in planning and decision making.
9. Customer value is the difference between what a customer receives and what the customer gives up when
buying a product or service. The focus on customer value forces management accounting to look at many
types of costs, not simply manufacturing cost. These may include the price of the good or service,
maintenance costs, search costs, learning costs, and disposal costs.
10. The value chain is the set of activities required to design, develop, produce, market, and deliver products
and services to customers. It is important because it helps the company to understand its role in serving
customers and to develop strategic competence.
11. Today’s managerial accountant must understand many functions of the business, from manufacturing to
marketing to distribution to customer service, in order to provide appropriate information for managing the
value chain. Increased international trade means the managerial accountant must be familiar with not only
business practices and laws in his or her own country but also in the countries with which the company
trades.
1-1
© 2023 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 1 Introduction to Managerial Accounting
12. Enterprise risk management (ERM) refers to the formal process of identifying the factors or threats, both
internal and external to the organization, that might prevent the organization from achieving its strategic
objectives. The managerial accountant plays an increasingly important role in ERM by providing financial and
nonfinancial measures of these threats and communicating them to high-level executives (e.g., chief risk
officer, chief financial officer, board of directors) in the organization who manage these factors.
13. Line positions are those that have direct responsibility for the basic objectives of an organization. These
typically include producing and selling a product. Staff positions are supportive in nature (e.g., human
resources, maintenance) and have only indirect responsibility for an organization’s basic objectives.
14. Yes, the controller should be a member of top management. This is because the controller, as the chief
accountant for the firm, has a wealth of information needed by top management in determining the strategic
direction of the firm.
15. Ethical behavior involves choosing actions that are right, proper, and just. Yes, it is possible to teach aspects
of ethical behavior in a managerial accounting classroom. Students need to see examples of right and wrong
behavior in business. These examples help them to recognize ethical dilemmas later on the job.
16. One major theme or executive pressure common to many of the recent accounting scandals is a focus on the
short term, rather than the long term. For example, WorldCom wrongly decided to increase current period net
income by inappropriately decreasing current period expenses (by recording more of the expenditures as an
asset that would be expensed in small amounts each period rather than all at once in the current period).
Often, the high-level executives that perpetrate such financial fraud are rewarded by incentives that
overweight current period net income performance relative to long-term net income performance. Another
major theme common to many of the accounting and banking frauds is a lack of sufficient transparency, or
clarity, in the types and timing of the information that is reported to parties outside of the organization. Some
business experts also would argue that a third common theme underlying many of these scandals was the
lack of sufficient oversight (i.e., watchdog mentality) by the perpetrating organization’s auditors, board of
directors, or both.
17. The three forms of certification discussed are the Certified Management Accountant, the Certified Public
Accountant, and the Certified Internal Auditor. While all three are appropriate to the accountant within the
company, only the CMA exam is interdisciplinary and covers the broad range of subjects faced by the
managerial accountant.
1-2
© 2023 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 1 Introduction to Managerial Accounting
MULTIPLE-CHOICE QUESTIONS
1-1. c
1-2. b
1-3. a
1-4. b
1-5. e
1-6. e
1-7. d
1-8. d
1-9. b
1-10. e
1-11. d
1-3
© 2023 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,CHAPTER 1 Introduction to Managerial Accounting
EXERCISES
E 1-12
a. Decision making
b. Controlling
c. Planning
d. Decision making
e. Planning
f. Decision making
E 1-13
a. Managerial accounting oriented
b. Financial accounting oriented
c. Managerial accounting oriented
d. Financial accounting oriented
e. Managerial accounting oriented
E 1-14
1. The total product is the product and its features (processing speed, disk drives,
software packages, and so on), the service, the operating and maintenance
requirements, and the delivery speed.
2. One company is emphasizing low costs, and the other is attempting to differentiate
its PC by offering faster delivery and higher-quality service.
3. The Confiar’s service component and its delivery time appear to be better than
Drantex’s. Thus, the realization of these features appears to outweigh the additional
sacrifice (the additional operating and maintenance cost) associated with the
Confiar PC. The implications for management accounting are straightforward. The
management accounting information system should collect and report information
about customer realization and sacrifice. Much of this information is external to the
firm but clearly needed by management.
4. Better quality and shorter delivery time increase the value of what the customer
receives, while lowering the price decreases the amount paid. In total, customer
value has increased, and presumably, this should make the Drantex PC much more
competitive. This example illustrates how quality, time, and costs are essential
competitive weapons. It also illustrates how critical it is for the management
accounting system to collect and report data concerning these three dimensions.
1-4
© 2023 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 1 Introduction to Managerial Accounting
E 1-15
Joan Dennison is staff. She is in a support role—she prepares reports and helps explain
and interpret them. Her role is to help the line managers more effectively carry out their
responsibilities.
Steven Swasey is a line manager. He has direct responsibility for producing a garden
hose. Clearly, one of the basic objectives for the existence of a manufacturing firm is to
make a product. Thus, Steven has direct responsibility for a basic objective and holds a
line position.
E 1-16
No, it is not ethical for Steve to demand a kickback from Dave. Dave should not agree
to this unethical proposal. This brief situation actually happened to Dave, a friend of
one of the authors. The author advised Dave not to accept the deal. Dave then checked
with his lawyer who bluntly told him the deal was illegal. Dave did not accept. In
addition to rejecting Steve’s unethical offer, Dave might consider reporting the
unethical offer to relevant key stakeholders, such as Steve’s superiors in the
university’s Athletic Department, university’s Office of the Provost, or president.
Hopefully, university administrators would be interested in learning of one (or more)
of its employees damaging the integrity of its bidding process with key business
partners such as Dave’s printing shop. If Dave were a management accountant, he
should consider the IMA's Statement of Ethical Professional Practice and what it says
about avoiding and reporting such unethical behavior (e.g., see the first standard under
Integrity and the second under Credibility).
E 1-17
A manager has a responsibility to the company as well as society. If the manager
lays off the employees, he or she ignores both of these responsibilities. In effect, the
manager would be pursuing self-interest at the expense of the company and the
salespeople. While pursuit of self-interest is not necessarily unethical, it can be if it
harms others. In this case, the manager’s action could result in lower profits for the
company because sales may decrease and unnecessary training costs will be incurred
when the positions are refilled the following year. Similarly, it is unjust to penalize
productive employees simply to earn a bonus. The right choice is to retain the three
salespeople. In ethical terms, the manager is not behaving with integrity.
The reward system, in part, encouraged this behavior. Apparently, the manager is paid a
bonus if profits exceed 10% of planned profits. By basing rewards on a measure such
as short-run profits, the company has given the manager an incentive to manipulate
earnings in the short run. One way of manipulating annual earnings is to reduce or
defer discretionary expenditures.
This type of behavior can be discouraged by proper matching of expenses with
revenues and by expanding the performance measures to include long-run factors
like market share, productivity, and personnel development. The accounting system
1-5
© 2023 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,CHAPTER 1 Introduction to Managerial Accounting
can also be used to track trends (e.g., training costs over time). Moreover, managers
can be required to provide extensive justification for significant changes in
discretionary expenses.
E 1-18
1. By the time most students graduate from high school, they have not had much
exposure to business. Therefore, they do not have full knowledge of acceptable
behavior for the business environment. Students may not know that certain
practices are unethical because they may not be familiar with the behavioral norms
associated with these practices. Once students begin to learn business practices,
they begin to see what ethical dilemmas can arise in a business context. Then they
are able to apply the moral training they have had to deal with the situations.
Furthermore, evidence exists that ethical reasoning can be changed for the better.
Thus, instruction in ethics can be a vital part of a student’s education.
2. Sacrificing self-interest is a choice that each person must make. Others may be
influenced by those individuals who behave ethically. Individuals committed to
ethical behavior produce societies committed to ethical behavior.
3. While this sounds noble, many would disagree that managers are first seeking to
serve others and accept personal financial rewards as a by-product of a good job.
Pursuit of self-interest and personal financial well-being is not necessarily unethical.
It is only when this pursuit is done at the expense of the collective good that the
behavior becomes questionable.
4. It is often true that unethical firms and individuals suffer financially. In the long run,
some evidence suggests that ethical behavior does pay. It is doubtful, however,
that every unethical firm or individual is wiped out financially. Too many notable
exceptions to this statement exist (e.g., the selling of drugs by organized crime).
5. While some unethical behavior might be highly visible, many discoveries of unethi-
cal behavior reveal that the unethical behavior spanned long time periods, often mul-
tiple years. For example, the fake account scandal at Wells Fargo was publicly
announced in 2016, but had been building internally for several years. This scandal
eventually revealed that over 5,000 Wells Fargo employees were fired for opening
millions of customer accounts without customer knowledge or consent. The scandal
cost Wells Fargo—an historic and long respected banking giant in the United
States—billions of dollars in fines, regulatory fees, legal and risk management
expenses, stock price valuation decreases, and reputational damage. Therefore,
some evidence exists that suggests that unethical behavior is not usually highly
visible and, thus, not quickly detected or, ultimately corrected.
1-6
© 2023 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 1 Introduction to Managerial Accounting
E 1-19
The employees should not follow the suggestion of their boss to purchase more
shares in anticipation of a buyout. This is insider trading and is illegal. Insider trading
is prohibited by many corporate codes of ethics. Even when it is not explicitly
prohibited by the corporate code of ethics, it is still wrong and illegal.
E 1-20
Answers will vary.
E 1-21
1. Answers will vary. However, some companies discuss various environmental
issues, such as rising sea levels, greenhouse gas emissions, or pollution (e.g., of
water, air, soil, landfills, etc.) as having important ethical consequences to their key
stakeholders (customers, employees, community members near their facilities, etc.).
Other companies discuss various social issues, such as worker safety, child
labor, and human rights as having important ethical consequences to their key
stakeholders (employees and suppliers). Finally, yet other companies discuss
various governance issues, such as company performance measures and employee
compensation, as having important ethical consequences to their key stakeholders
(executives and other employees) as the actions that are measured and rewarded
(as part of governance’s compensation oversight) typically reflect the items of
greatest interest to the company. Of course, successes (or failures) in identifying
and managing the ethical consequences of any environmental, social, or governance
ultimately have materially significant impacts on company shareholders.
2. Again answers will vary. However, companies are generally increasing use of data
analytics (e.g., descriptive, diagnostic, predictive, or prescriptive approaches) in
various ways to capture and analyze data regarding their environmental, social, or
governance performance. In addition, companies often utilize various static and
dynamic data visualization techniques (e.g., dashboards, charts) to communicate
their ESG performance to key stakeholders within their ESG reports. Finally,
Chapter 2 discusses data analytics (including Exhibit 2.2) in more detail.
1-7
© 2023 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, BASIC MANAGERIAL
2 ACCOUNTING CONCEPTS
DISCUSSION QUESTIONS
1. Cost is the amount of cash or cash equivalent sacrificed for goods and/or services that are
expected to bring a current or future benefit to the organization. An expense is an expired cost;
the benefit has been used up.
2. Accumulating costs is the way that costs are measured and recorded. Assigning costs is linking
costs to some cost object. For example, a company accumulates or tracks costs by entering
them into the general ledger accounts. Direct materials would be entered into the materials
account; direct labor would be entered into the direct labor account. Then, these costs are
assigned to units of product.
3. A cost object is something for which you want to know the cost. For example, a cost object may be
the human resources department of a company. The costs related to that cost object might include
salaries of employees of that department, telephone costs for that department, and depreciation on
office equipment. Another example is a customer group of a company. Atlantic City and Las Vegas
casinos routinely treat heavy gamblers to free rooms, food, and drink. The casino owners know the
benefits yielded by these high rollers and need to know the costs of keeping them happy, such as
the opportunity cost of lost revenue from the rooms, the cost of the food, and so on.
4. A direct cost is one that can be traced to the cost object, typically by physical observation. An
indirect cost cannot be traced easily and accurately to the cost object. The same cost can be direct
for one purpose and indirect for another. For example, the salaries paid to purchasing department
employees in a factory are a direct cost to the purchasing department but an indirect cost
(overhead) to units of product.
5. Allocation means that an indirect cost is assigned to a cost object using a reasonable and
convenient method. Since no causal relationship exists, allocating indirect costs is based on
convenience or some assumed linkage.
6. The practice of data analytics is used widely within many management accounting environments.
Therefore, answers to this question will vary. Overall, a data analytics perspective helps
management accountants decide what to measure and why to measure it. Management
accountants then use the answers to these important questions to decide how to quantify these
measures and where to assemble (i.e., existing data), collect (i.e., using an existing or new
information system), or purchase (i.e., from outside the company) the necessary data.
Management accountants next use the resulting data and decide which specific data analytic
technique to use in their decision scenario. A sample of data analytic examples within
management accounting environments includes (some of which will be specifically studied in
future chapters):
• sentiment analysis to discover customer loyalty patterns
• regression analysis to find significant cost drivers
• high-low to separate variable and fixed cost components
• pivot tables
• budget forecasts of product and period costs
• profit and loss projections for proposed or existing product and service lines
2-1
© 2023 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Cornerstone of Business Decision Making , 8th
Edition Maryanne M. Mowen
Notes
1- The file is chapter after chapter.
2- We have shown you 10 or five pages.
3- The file contains all Appendix and Excel
sheet if it exists.
4- We have all what you need, we make
update at every time. There are many new
editions waiting you.
5- If you think you purchased the wrong file
You can contact us at every time, we can
replace it with true one.
Our email:
, INTRODUCTION TO MANAGERIAL
1 ACCOUNTING
DISCUSSION QUESTIONS
1. Managerial accounting provides accounting information for internal users in a firm. Specifically, managerial
accounting identifies, collects, measures, classifies, and reports financial and nonfinancial information that is
useful to internal users in planning, controlling, and decision making. Managerial accounting also has no
mandatory rules, emphasizes the future, and is multidisciplinary.
2. The three broad objectives of managerial accounting are to provide information for planning, controlling, and
decision making.
3. The users of managerial accounting information are generally managers and other employees of a firm.
Managerial accounting information is typically not provided to outsiders but may be in selected cases. For
example, a bank may require budgeting information for the next few years before agreeing to grant a loan.
4. A managerial accounting system typically provides both financial and nonfinancial information. For example,
financial information on cost of production is tracked. Other information, such as the number of warranty
returns, may also be tracked by the management information system.
5. Controlling involves comparing the expected performance with the actual performance to see what
differences, if any, exist.
6. Planning occurs first. Planning requires setting objectives and identifying the means of achieving those
objectives. Then, the results of the plan are compared with the plan, which is called controlling. Clearly, it is
also feedback, in that any impediments or unexpected occurrences are noted. This feedback is then used to
develop the plan for the next period.
7. Managerial accounting is internally focused, does not follow mandatory rules, keeps track of both financial
and nonfinancial information, emphasizes the future, and relies on a broad range of disciplines. Financial
accounting, on the other hand, is externally focused, follows externally imposed rules (such as GAAP), has a
historical orientation, and provides information about the company as a whole.
8. Managerial accountants have had to broaden their focus beyond simple financial reporting to include the
gathering of information on all types of costs and of the value of the product or service to customers. These
broader costs are used in planning and decision making.
9. Customer value is the difference between what a customer receives and what the customer gives up when
buying a product or service. The focus on customer value forces management accounting to look at many
types of costs, not simply manufacturing cost. These may include the price of the good or service,
maintenance costs, search costs, learning costs, and disposal costs.
10. The value chain is the set of activities required to design, develop, produce, market, and deliver products
and services to customers. It is important because it helps the company to understand its role in serving
customers and to develop strategic competence.
11. Today’s managerial accountant must understand many functions of the business, from manufacturing to
marketing to distribution to customer service, in order to provide appropriate information for managing the
value chain. Increased international trade means the managerial accountant must be familiar with not only
business practices and laws in his or her own country but also in the countries with which the company
trades.
1-1
© 2023 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 1 Introduction to Managerial Accounting
12. Enterprise risk management (ERM) refers to the formal process of identifying the factors or threats, both
internal and external to the organization, that might prevent the organization from achieving its strategic
objectives. The managerial accountant plays an increasingly important role in ERM by providing financial and
nonfinancial measures of these threats and communicating them to high-level executives (e.g., chief risk
officer, chief financial officer, board of directors) in the organization who manage these factors.
13. Line positions are those that have direct responsibility for the basic objectives of an organization. These
typically include producing and selling a product. Staff positions are supportive in nature (e.g., human
resources, maintenance) and have only indirect responsibility for an organization’s basic objectives.
14. Yes, the controller should be a member of top management. This is because the controller, as the chief
accountant for the firm, has a wealth of information needed by top management in determining the strategic
direction of the firm.
15. Ethical behavior involves choosing actions that are right, proper, and just. Yes, it is possible to teach aspects
of ethical behavior in a managerial accounting classroom. Students need to see examples of right and wrong
behavior in business. These examples help them to recognize ethical dilemmas later on the job.
16. One major theme or executive pressure common to many of the recent accounting scandals is a focus on the
short term, rather than the long term. For example, WorldCom wrongly decided to increase current period net
income by inappropriately decreasing current period expenses (by recording more of the expenditures as an
asset that would be expensed in small amounts each period rather than all at once in the current period).
Often, the high-level executives that perpetrate such financial fraud are rewarded by incentives that
overweight current period net income performance relative to long-term net income performance. Another
major theme common to many of the accounting and banking frauds is a lack of sufficient transparency, or
clarity, in the types and timing of the information that is reported to parties outside of the organization. Some
business experts also would argue that a third common theme underlying many of these scandals was the
lack of sufficient oversight (i.e., watchdog mentality) by the perpetrating organization’s auditors, board of
directors, or both.
17. The three forms of certification discussed are the Certified Management Accountant, the Certified Public
Accountant, and the Certified Internal Auditor. While all three are appropriate to the accountant within the
company, only the CMA exam is interdisciplinary and covers the broad range of subjects faced by the
managerial accountant.
1-2
© 2023 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 1 Introduction to Managerial Accounting
MULTIPLE-CHOICE QUESTIONS
1-1. c
1-2. b
1-3. a
1-4. b
1-5. e
1-6. e
1-7. d
1-8. d
1-9. b
1-10. e
1-11. d
1-3
© 2023 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,CHAPTER 1 Introduction to Managerial Accounting
EXERCISES
E 1-12
a. Decision making
b. Controlling
c. Planning
d. Decision making
e. Planning
f. Decision making
E 1-13
a. Managerial accounting oriented
b. Financial accounting oriented
c. Managerial accounting oriented
d. Financial accounting oriented
e. Managerial accounting oriented
E 1-14
1. The total product is the product and its features (processing speed, disk drives,
software packages, and so on), the service, the operating and maintenance
requirements, and the delivery speed.
2. One company is emphasizing low costs, and the other is attempting to differentiate
its PC by offering faster delivery and higher-quality service.
3. The Confiar’s service component and its delivery time appear to be better than
Drantex’s. Thus, the realization of these features appears to outweigh the additional
sacrifice (the additional operating and maintenance cost) associated with the
Confiar PC. The implications for management accounting are straightforward. The
management accounting information system should collect and report information
about customer realization and sacrifice. Much of this information is external to the
firm but clearly needed by management.
4. Better quality and shorter delivery time increase the value of what the customer
receives, while lowering the price decreases the amount paid. In total, customer
value has increased, and presumably, this should make the Drantex PC much more
competitive. This example illustrates how quality, time, and costs are essential
competitive weapons. It also illustrates how critical it is for the management
accounting system to collect and report data concerning these three dimensions.
1-4
© 2023 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 1 Introduction to Managerial Accounting
E 1-15
Joan Dennison is staff. She is in a support role—she prepares reports and helps explain
and interpret them. Her role is to help the line managers more effectively carry out their
responsibilities.
Steven Swasey is a line manager. He has direct responsibility for producing a garden
hose. Clearly, one of the basic objectives for the existence of a manufacturing firm is to
make a product. Thus, Steven has direct responsibility for a basic objective and holds a
line position.
E 1-16
No, it is not ethical for Steve to demand a kickback from Dave. Dave should not agree
to this unethical proposal. This brief situation actually happened to Dave, a friend of
one of the authors. The author advised Dave not to accept the deal. Dave then checked
with his lawyer who bluntly told him the deal was illegal. Dave did not accept. In
addition to rejecting Steve’s unethical offer, Dave might consider reporting the
unethical offer to relevant key stakeholders, such as Steve’s superiors in the
university’s Athletic Department, university’s Office of the Provost, or president.
Hopefully, university administrators would be interested in learning of one (or more)
of its employees damaging the integrity of its bidding process with key business
partners such as Dave’s printing shop. If Dave were a management accountant, he
should consider the IMA's Statement of Ethical Professional Practice and what it says
about avoiding and reporting such unethical behavior (e.g., see the first standard under
Integrity and the second under Credibility).
E 1-17
A manager has a responsibility to the company as well as society. If the manager
lays off the employees, he or she ignores both of these responsibilities. In effect, the
manager would be pursuing self-interest at the expense of the company and the
salespeople. While pursuit of self-interest is not necessarily unethical, it can be if it
harms others. In this case, the manager’s action could result in lower profits for the
company because sales may decrease and unnecessary training costs will be incurred
when the positions are refilled the following year. Similarly, it is unjust to penalize
productive employees simply to earn a bonus. The right choice is to retain the three
salespeople. In ethical terms, the manager is not behaving with integrity.
The reward system, in part, encouraged this behavior. Apparently, the manager is paid a
bonus if profits exceed 10% of planned profits. By basing rewards on a measure such
as short-run profits, the company has given the manager an incentive to manipulate
earnings in the short run. One way of manipulating annual earnings is to reduce or
defer discretionary expenditures.
This type of behavior can be discouraged by proper matching of expenses with
revenues and by expanding the performance measures to include long-run factors
like market share, productivity, and personnel development. The accounting system
1-5
© 2023 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,CHAPTER 1 Introduction to Managerial Accounting
can also be used to track trends (e.g., training costs over time). Moreover, managers
can be required to provide extensive justification for significant changes in
discretionary expenses.
E 1-18
1. By the time most students graduate from high school, they have not had much
exposure to business. Therefore, they do not have full knowledge of acceptable
behavior for the business environment. Students may not know that certain
practices are unethical because they may not be familiar with the behavioral norms
associated with these practices. Once students begin to learn business practices,
they begin to see what ethical dilemmas can arise in a business context. Then they
are able to apply the moral training they have had to deal with the situations.
Furthermore, evidence exists that ethical reasoning can be changed for the better.
Thus, instruction in ethics can be a vital part of a student’s education.
2. Sacrificing self-interest is a choice that each person must make. Others may be
influenced by those individuals who behave ethically. Individuals committed to
ethical behavior produce societies committed to ethical behavior.
3. While this sounds noble, many would disagree that managers are first seeking to
serve others and accept personal financial rewards as a by-product of a good job.
Pursuit of self-interest and personal financial well-being is not necessarily unethical.
It is only when this pursuit is done at the expense of the collective good that the
behavior becomes questionable.
4. It is often true that unethical firms and individuals suffer financially. In the long run,
some evidence suggests that ethical behavior does pay. It is doubtful, however,
that every unethical firm or individual is wiped out financially. Too many notable
exceptions to this statement exist (e.g., the selling of drugs by organized crime).
5. While some unethical behavior might be highly visible, many discoveries of unethi-
cal behavior reveal that the unethical behavior spanned long time periods, often mul-
tiple years. For example, the fake account scandal at Wells Fargo was publicly
announced in 2016, but had been building internally for several years. This scandal
eventually revealed that over 5,000 Wells Fargo employees were fired for opening
millions of customer accounts without customer knowledge or consent. The scandal
cost Wells Fargo—an historic and long respected banking giant in the United
States—billions of dollars in fines, regulatory fees, legal and risk management
expenses, stock price valuation decreases, and reputational damage. Therefore,
some evidence exists that suggests that unethical behavior is not usually highly
visible and, thus, not quickly detected or, ultimately corrected.
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, CHAPTER 1 Introduction to Managerial Accounting
E 1-19
The employees should not follow the suggestion of their boss to purchase more
shares in anticipation of a buyout. This is insider trading and is illegal. Insider trading
is prohibited by many corporate codes of ethics. Even when it is not explicitly
prohibited by the corporate code of ethics, it is still wrong and illegal.
E 1-20
Answers will vary.
E 1-21
1. Answers will vary. However, some companies discuss various environmental
issues, such as rising sea levels, greenhouse gas emissions, or pollution (e.g., of
water, air, soil, landfills, etc.) as having important ethical consequences to their key
stakeholders (customers, employees, community members near their facilities, etc.).
Other companies discuss various social issues, such as worker safety, child
labor, and human rights as having important ethical consequences to their key
stakeholders (employees and suppliers). Finally, yet other companies discuss
various governance issues, such as company performance measures and employee
compensation, as having important ethical consequences to their key stakeholders
(executives and other employees) as the actions that are measured and rewarded
(as part of governance’s compensation oversight) typically reflect the items of
greatest interest to the company. Of course, successes (or failures) in identifying
and managing the ethical consequences of any environmental, social, or governance
ultimately have materially significant impacts on company shareholders.
2. Again answers will vary. However, companies are generally increasing use of data
analytics (e.g., descriptive, diagnostic, predictive, or prescriptive approaches) in
various ways to capture and analyze data regarding their environmental, social, or
governance performance. In addition, companies often utilize various static and
dynamic data visualization techniques (e.g., dashboards, charts) to communicate
their ESG performance to key stakeholders within their ESG reports. Finally,
Chapter 2 discusses data analytics (including Exhibit 2.2) in more detail.
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, BASIC MANAGERIAL
2 ACCOUNTING CONCEPTS
DISCUSSION QUESTIONS
1. Cost is the amount of cash or cash equivalent sacrificed for goods and/or services that are
expected to bring a current or future benefit to the organization. An expense is an expired cost;
the benefit has been used up.
2. Accumulating costs is the way that costs are measured and recorded. Assigning costs is linking
costs to some cost object. For example, a company accumulates or tracks costs by entering
them into the general ledger accounts. Direct materials would be entered into the materials
account; direct labor would be entered into the direct labor account. Then, these costs are
assigned to units of product.
3. A cost object is something for which you want to know the cost. For example, a cost object may be
the human resources department of a company. The costs related to that cost object might include
salaries of employees of that department, telephone costs for that department, and depreciation on
office equipment. Another example is a customer group of a company. Atlantic City and Las Vegas
casinos routinely treat heavy gamblers to free rooms, food, and drink. The casino owners know the
benefits yielded by these high rollers and need to know the costs of keeping them happy, such as
the opportunity cost of lost revenue from the rooms, the cost of the food, and so on.
4. A direct cost is one that can be traced to the cost object, typically by physical observation. An
indirect cost cannot be traced easily and accurately to the cost object. The same cost can be direct
for one purpose and indirect for another. For example, the salaries paid to purchasing department
employees in a factory are a direct cost to the purchasing department but an indirect cost
(overhead) to units of product.
5. Allocation means that an indirect cost is assigned to a cost object using a reasonable and
convenient method. Since no causal relationship exists, allocating indirect costs is based on
convenience or some assumed linkage.
6. The practice of data analytics is used widely within many management accounting environments.
Therefore, answers to this question will vary. Overall, a data analytics perspective helps
management accountants decide what to measure and why to measure it. Management
accountants then use the answers to these important questions to decide how to quantify these
measures and where to assemble (i.e., existing data), collect (i.e., using an existing or new
information system), or purchase (i.e., from outside the company) the necessary data.
Management accountants next use the resulting data and decide which specific data analytic
technique to use in their decision scenario. A sample of data analytic examples within
management accounting environments includes (some of which will be specifically studied in
future chapters):
• sentiment analysis to discover customer loyalty patterns
• regression analysis to find significant cost drivers
• high-low to separate variable and fixed cost components
• pivot tables
• budget forecasts of product and period costs
• profit and loss projections for proposed or existing product and service lines
2-1
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