Chapter 1 – The Changing Role of Managerial Accounting in a Dynamic Business Environment
78. Which of the following statements about the ethical climate of business is false?
A. Greedy corporate executives are, in part, to blame for the rash of corporate scandals that
79. Which of the following is not an ethical standard of managerial accounting?
80. Which of the following is not an element of competency?
81. Assume that a managerial accountant regularly communicates with business associates to
avoid conflicts of interest and advises relevant parties of potential conflicts. In so doing, the
accountant will have applied the ethical standard of:
Chapter 1 – The Changing Role of Managerial Accounting in a Dynamic Business Environment
Essay Questions
82. Give examples of each of the four primary management activities in the context of a
national pizza franchise.
Solution:
Examples of the four primary management activities in the context of a national pizza
franchise are as follows:
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83. State Hospital was once the premier health facility in the Yesville community.
Unfortunately, budget cuts and the loss of strategic personnel due to non-competitive salaries
have taken a toll on the hospital. The hospital decided to align current strategic goals using
the Balanced Scorecard approach. These goals are:
Financial: Balance revenue and Cost to break-even, leading to profit.
Customer: Create new value for customer.
Internal process: Ensure service quality and expand service networks.
Learning and growth: Work toward more employees becoming leaders.
Based on these goals, the hospital developed Objectives for the new balanced scorecard as
follows:
Financial Perspectives: Enhance operational excellence and cost management.
Customer Perspectives: Investigate customer needs.
Internal Process Perspectives: Enhance the combined professional service quality.
Learning and Growth Perspectives: (1) Enhance employee satisfaction; and (2) Slow down
the expansion of operating activity.
Required:
Given these objectives, list at least (5) measurements for each perspective.
Chapter 1 – The Changing Role of Managerial Accounting in a Dynamic Business Environment
Solution:
84. Magnum Overnight operates an overnight package delivery service that competes with
Federal Express and United Parcel Service (UPS). Top management is considering the use of
a balanced scorecard to evaluate operations.
Required:
A. What is a balanced scorecard and other than customer-satisfaction measures, what are its
typical key components?
B. List four customer-satisfaction measures that Magnum might use to evaluate performance.
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85. Consider the descriptors that follow.
1. Is heavily involved with the recordkeeping and reporting of assets, liabilities, and
stockholders’ equity.
2. Focuses on planning, decision making, directing, and control.
3. Is heavily regulated.
4. A field that is becoming more “cross-functional” in nature.
5. Much of the field is based on costs and benefits.
6. Is involved almost exclusively with past transactions and events.
7. Much of the information provided is directed toward stockholders, financial analysts,
creditors, and other external parties.
8. Tends to focus more on subunits within an entity rather than the organization as a whole.
9. May become involved with measures of customer satisfaction, and the amount of actual
cost incurred vs. budgeted targets.
Required:
Determine whether the descriptors are most closely associated with financial accounting or
managerial accounting.
Solution:
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86. Briefly distinguish between managerial accounting and financial accounting. Be sure to
comment on the general focus, users, and regulation related to the two fields.
Solution:
87. The following are activities for State Hospital.
Required: Classify each as a value-added (V) or nonvalue-added (N) and give an explanation
why you answered the way you did.
Activity
Classification (V or N)
Explanation
Patients waiting in the lobby
Providing in-patient x-rays
Retaking x-rays to get a different
view
Outpatient dialysis
Solution:
Activity
Classification (V or N)
Explanation
Patients waiting in the lobby
N
Does not add to the patient
experience or satisfaction
Providing in-patient x-rays
V
Patients gain value by not having
to go to another facility
a critical care procedure, without
a hospital stay.
88. The value chain is a key component of contemporary management accounting.
Required:
Define the term “value chain” and explain how it would relate to an airline.
Solution:
89. Required: Present several examples of managerial accounting information that could
help a manager make each of the following decisions:
A. A manufacturing company is currently making a part that is a production headache. The
firm is deciding whether to abandon production and buy the part from an outside supplier.
B. An operator of fast-food restaurants is deciding whether to open a new store in Dallas.
Solution:
90.
1. Auditions for actors and actresses
2. Development of promotional materials for use by local newspapers
3. Focus groups to evaluate ideas for potential television comedy series
4. Production of DVDs for release to big box stores and online video outlets
5. On-location shooting of scenes
6. Fine-tuning and rewrites of scripts
7. Set design and construction for a new medical drama
Required:
A. Evaluate the seven activities as upstream (pre-production), production, or downstream
(post-production) in nature.
B. Generally speaking, which activities (upstream, production, or downstream), if any, can
management ignore if the company is to be successful in achieving its key strategic goals?
Solution:
A.
91. Unused or excess capacity is a key component of contemporary management accounting.
Required:
Define the term “excess capacity” and explain how it would relate to a coffee shop.
Solution:
92. Tae Franklin is the sales manager of Darius Enterprises, a very profitable distributor of
office furniture to local businesses. A recent economic downturn has created an extremely
tight cash position, and the company has been hurt by the bankruptcy of two key customers.
In late October, anticipating an economic recovery, Franklin began an extensive remodeling
of the company’s sales floor. Construction costs, decorating, and equipment purchases are
projected to cost $250,000.
Darius has a policy that individual expenditures in excess of $200,000 must be approved by
the firm’s board of directors. Franklin, unfortunately, missed the deadline to have the board
consider this project at its regular September meeting. Not wanting to wait until the next
meeting in December, he subdivided the project in two parts—construction and decorating
($190,000) and equipment purchases ($60,000)—neither of which needed board approval
because of the dollar amounts involved.
The project was recently completed and sales have begun to recover. Customers have raved
about the new sales area, noting that it is far superior to those of Darius’s competitors.
Required:
A. Would Franklin’s approach of subdividing the project in two parts have any effect on the
company’s financial statements? Briefly explain.
B. Briefly discuss whether Franklin behaved in an ethical manner.
C. Which, if any, of the following standards of conduct would have applicability to Franklin’s
conduct: competence, confidentiality, integrity, or credibility? Briefly explain.
Solution:
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93. Many professions have adopted a series of ethical standards to provide guidance for their
memberships. The Institute of Management Accountants (IMA), for example, has published
standards that focus on competence, confidentiality, integrity, and credibility. In light of these
standards, consider the three cases that follow.
Case A—Leston Corporation has experienced serious financial difficulties in recent years.
John Young, the company’s chief financial officer, has just learned that a major competitor
was likely to file for bankruptcy; however, he failed to disclose this information at a board
meeting held later that day when a plant closure decision was being discussed. The board
evaluated several proposals during the session that focused on improving Leston’s financial
position.
Case B—QBX Company manufactures fertilizer from various raw materials, including a raw
material know as Felstar. Paul Kelly, the firm’s purchasing manager, purposely acquired a
lower grade of Felstar than normal because of a very attractive price. The lower-grade product
resulted in increased usage during the manufacturing process but had no effect on the
fertilizer’s overall quality. An end-of-period report showed that QBX profited from Kelly’s
actions, with the overall savings in purchase price more than offsetting the cost of added
consumption.
Case C—Central Distributing has a participative budgeting process, allowing employees to
have a say in projected sales targets for the upcoming period. These targets are reflected in a
series of performance reports that compare actual sales achieved against targeted amounts.
Hillary Baxter submitted very low sales targets because, as she confided in a colleague, “I
always want to look good in terms of meeting targets, even if anticipated sales and closures
don’t materialize.”
Required:
Evaluate the three cases and determine the ethical issues, if any, which are involved. Cite the
IMA’s standards if appropriate.
Chapter 1 – The Changing Role of Managerial Accounting in a Dynamic Business Environment
Solution: