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Chapter 01 - Cost Management and Strategy
1.24The IMA definition of management accounting states that:
a. Management accounting is the process of gathering, reporting, and
analyzing information for management decision making
b. Management accounting is a profession that involves preparation and
analysis of cost information, budgeting, performance measurement and
analysis, to assist managers in decision making
c. Management accounting involves partnering in management decision
making, planning and performance measurement to assist in the
formulation and implementation of an organization’s strategy
d. Management accounting is a set of practices in which accountants,
working within companies, help managers to make better decisions based
on accurate financial information
Feedback: The IMA definition: “Management Accounting is a profession that involves
partnering in management decision making, devising planning and performance
management systems, and providing expertise in financial reporting and control to
assist management in the formulation and implementation of an organization’ strategy.”
Answer c) is the best fit.
1-25 Which of the following is the correct sequence in which cost management
information is developed and used?
a. Business events, data, information, analysis, decisions
b. Business events, data, analysis, information, decisions
c. Business events, information, analysis, knowledge, decisions
d. Business events, data, information, knowledge, decisions
Feedback: events, data, information, knowledge, decisions is the correct sequence, as
used by the IMA in the definition of management accounting
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1-26. Cost management uses the expertise of the management accountant to
a. Improve quality and reduce cost
b. Implement a strategy of cost leadership or differentiation
c. Implement a strategy of customer value and shareholder value
d. Improve business processes and lean operations
Feedback: This question requires an understanding of the definition of management
accounting, that is, management accounting “assists management in the formulation
1-27. The cost management experts in an organization probably report directly to the:
a. Controller
b. Treasurer
c. Chief executive officer (CEO)
d. Chief financial officer (CFO)
1-28 Walmart, Costco, and Dollar General are retailers that compete on the basis of
a. Quality and customer service
b. Product differentiation
c. Low prices
d. Desirable locations
1-29. Cost management has evolved from a focus on measurement to one of
identifying those measures that are critical to the organization’s success. This means
that cost managers are striving for this type of cost management system:
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Chapter 01 - Cost Management and Strategy
a. Basic transaction reporting systems
b. A system that focuses on reliable external financial reports
c. A system that tracks key operating data and develops more accurate
and relevant cost information for decision making
d. A system in which strategically relevant cost management information
is an integral part of the system
1-30. A management method in which managers and employees commit to a process
of continuous improvement is best described as:
a. Total quality management
b. Business process improvement
c. Lean accounting
d. The theory of constraints
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Chapter 01 - Cost Management and Strategy
1-31 Professional certifications are issued by the American Institute of Certified Public
Accountants (AICPA), the Institute of Management Accountants (IMA), The Chartered
Institute of Management Accountants (CIMA) and the Society of Management
Accountants in Canada (CMA-Canada), among other professional accounting
organizations. The Certificate in Management Accounting (CMA) is issued by:
a. CIMA
b. IMA
c. CMA-Canada
d. AICPA
1-32. To determine whether a particular action is professionally ethical or not, using the
Institute of Management Accountants Statement of Ethical Professional Practice, it is
necessary to know:
e. Whether the act is legal in your jurisdiction
f. The intent and the business context of the act
g. The amount of the fraud or theft that is involved
h. Whether the management accountant is certified or not
be more significant for a certified management accountant.
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1-33. Firms that want to grow quickly in the global marketplace often employ the cost
leadership strategy because:
a. This produces favorable customs rates and import duties
b. Manufacturers around the world adopt lean manufacturing methods to
bring their costs down
c. This allows them to employ and benefit from enterprise management
systems
d. There are relatively few product variations across different countries
1-34. The strategy map can be compared to the balanced scorecard (BSC) in that:
a. The strategy map is a subset of the BSC
b. The strategy map deals with the strategy component of the BSC
c. The strategy map provides a guide to implementing the BSC by linking
the critical success factors
d. The strategy map and the BSC are unrelated
perspectives of the BSC,
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1-35. The IMA ethical standard that requires the management accountant to mitigate
conflicts of interest:
a. Requires the management accountant to act with integrity
b. Is not a part of the IMA Statement of Ethical Professional Practice
c. Is necessary to ensure that the management accountant’s credibility is
not impaired
d. Is necessary to ensure that the management accountant does not
violate the standard regarding confidentiality
1. Mitigate actual conflict of interest. Regularly communicate with business
associates to avoid apparent conflicts of interest.
2. Refrain from engaging in any conduct that would prejudice carrying out duties
ethically
3. Abstain from engaging in our supporting any activity that might discredit the
profession
conflicts of interest
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Chapter 01 - Cost Management and Strategy
EXERCISES
1-36 Strategy; Real Estate Services (15 min)
This exercise can be used to provide a good perspective for the
students to see the role of cost management in solving business
issues, and in placing the management accountant in more of a
leadership role in the firm. It also provides an early motivation for the
cost behavior issues to be discussed later in chapter 3 and chapter 8.
The management accountant has a hunch that the company is
about to take on a potentially damaging strategic initiative. This is a
great opportunity to begin to play more of a strategic role in the
company. The first step should be to obtain the relevant information
about projected revenues and costs and do a careful analysis of the
likely profitability of developing the new, smaller customers.
Here’s how the case might be used in a class discussion. First,
ask the class to identify the types of costs likely to be incurred by this
company in providing its service. The answers are likely to include
labor costs and materials for cleaning and maintenance, in addition to
costs for maintaining the firm’s office. As these examples are given,
put them on the chalkboard and collect 6 or 8 of them. Then, ask
how each of these costs might differ between large and small
customers. For example, the cost of cleaning labor and materials will
likely be somewhat proportional to the square feet of space each
customer occupies, so that cost projections based on current
customer experience is likely to be useful in estimating the
costs/profits of the smaller customers. However, security costs are
likely to not vary greatly based on the size of the customer. How
does this affect the pricing and the potential profitability of the smaller
customers? Similarly, how will the office-related costs of managing
the customer account differ between large and small customers –
probably not much at all. Overall, the fact that some costs will not be
proportional to customer size (as measured by square feet of office
space) means the smaller customers will be more costly, per unit of
floor space, than the larger customers. This should be taken into
account in pricing the smaller jobs and in projecting profits from the
smaller customers.
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Chapter 01 - Cost Management and Strategy
1-36 (continued-1)
An important issue this case brings out is the need for the
management accountant to take a proactive role in business decision
making. The discussion here should focus on what steps the
accountant should take to become a more integral part of business
decision making. A number of possible answers are likely to be
proposed.
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Chapter 01 - Cost Management and Strategy
1-37 Impact of the Recession on the Role of Cost Management (15
min)
This question is intended for a brief class discussion, with a number
of possible answers. Some students will note that the financial crisis
has increased the importance of finance generally, as companies
(especially smaller ones) work hard to manage cash flow and to
reduce costs in the face of declining revenues. Others will argue that
the financial crisis has turned management’s focus to operational
efficiency, or to renewed efforts at retaining customers, etc. All of
these responses are part of a good overall solution.
Two important points can be made in the discussion. One is the
effect of the financial crisis on the continuing change of the types of
skills required of management accountants, and the second is the
increased importance of the management accountant’s role in
strategy.
The impact of the recession on finance and cost management, as for
other areas of business, is to motivate a drive for efficiency. Many
finance staffs have reduced their numbers significantly. On the
other hand, the important development is that the demand for
finance skills has shifted. Automation of the finance function and
some outsourcing has reduced the number of finance-related tasks
that are easy to automate. However, demand has increased for
financial planning and analysis skills; the analytical and strategic
aspects of cost management have become more important to
companies as they look for new ways to compete in the difficult
economic times.
For example, cost management can also be used in target costing
and strategic planning to identify opportunities for success in the
currently weak economic conditions in the U.S. and Europe. To
illustrate, some manufacturers of parts for construction equipment
have targeted high-end products that are in demand in the emerging
markets such as China and India and which are difficult for
competitors to produce at a competitive price.
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Chapter 01 - Cost Management and Strategy
1-37 (continued -1)
Another important finding, based on a survey of CFOs, shows:
o46% of the CFOs surveyed report that the crisis has enhanced
the demand for their skills
o57% report that their role “has become more important and
respectful”
o87 % report that they feel they “havea voice in business issues
beyond finance, including corporate strategy.”
A broad take-away of the discussion should be the enhanced role of
the finance function, the management accountant, and particularly
the role of the management accountant in the organization’s strategy
development and implementation.
Source: Alix Stuart, “The Incredible Shrinking Finance Department,”
CFO, November 2010, pp 46-52; “Recession Impressions,” CFO,
November 2009, pp 42-43; John Helyar and Phil Kuntz, “A Mini-
Revival for the Rust Belt,” Bloomberg Businessweek, August 29,
2011, pp 20-21.
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