978-0133058789 Chapter 1 Part 1

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CHAPTER 1

COVERAGE OF LEARNING OBJECTIVES

LEARNING OBJECTIVE

FUNDA-

MENTAL

ASSIGN-

MENT

MATERIAL

CRITICAL

THINKING

EXERCISES

AND

EXERCISES

PROBLEMS

CASES,

EXCEL,

COLLAB., &

INTERNET

EXERCISES

LO1: Explain why accounting is

essential for decision makers and

managers.

30, 31

52, 55

LO2: Describe the major users

and uses of accounting

information.

A1, B1

28, 29, 33

39, 40, 42

55

LO3: Explain the role of budgets

and performance reports in

planning and control.

A2, B2

32

45

53

LO4: Describe the cost-benefit

and behavioral issues involved in

designing an accounting system.

41, 43

LO5: Discuss the role

accountants play in the

company’s value chain functions.

A1, B1

30, 31, 34, 35,

36

39, 42, 44, 46

LO6: Identify current trends in

management accounting.

54

LO7: Explain why ethics and

standards of ethical conduct are

important to accountants.

A3, B3

37, 38

47, 48, 49

51, 52, 55

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CHAPTER 1

Managerial Accounting, the Business Organization, and Professional Ethics

1-A1 (10-15 min.)

Information is often useful for more than one function, so the following classifications for

each activity are not definitive but serve as a starting point for discussion:

1. Scorekeeping. A depreciation schedule is used in preparing financial statements

to report the results of activities.

2. Problem solving. Helps a manager assess the impact of a purchase decision.

3. Scorekeeping. Reports on the results of an operation. Could also be attention

directing if scrap is an area that might require management attention.

4. Attention directing. Focuses attention on areas that need attention.

5. Attention directing. Helps managers learn about the information contained in a

performance report.

6. Scorekeeping. The statement reports what has happened. Could also be attention

directing if the report highlights a problem or issue.

7. Problem solving. Assuming the cost comparison is to help the manager decide

between two alternatives, this is problem solving.

8. Attention directing. Variances point out areas where results differ from

expectations. Interpreting them directs attention to possible causes of the

differences.

9. Problem solving. Aids a decision about where to make parts.

10. Attention directing and problem solving. Budgeting involves making decisions

about planned activities — hence, aiding problem solving. Budgets also direct

attention to areas of opportunity or concern — hence, directing attention.

Reporting against the budget also has a scorekeeping dimension.

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1-A2 (15-20 min.)

1. Budgeted Actual Deviations

Amounts Amounts or Variances

2. Because of the management by exception rule, room rental and entertainment

require no explanation. The actual expenditure for food exceeded the budget by

$132) and the remaining $83 ($215 – $132) is explained by expenditures above

$8.25 per person.

1-A3 (10 min.)

2. Felix must address his level of competence for the assignment. If his supervisor

3. The credibility standard should cause Mary Sue to decline to omit the information

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1-B1 (15-20 min.)

1. Problem solving. Provides information for deciding between two alternative

courses of action.

3. Problem solving. Helps a manager decide among alternatives.

5. Problem solving. Provides information to managers for deciding whether to move

corporate headquarters.

7. Attention directing. Directs attention to areas where actual results differed from

the budget.

9. Problem solving. Produces information to help the marketing department make a

decision about a marketing campaign.

11. Attention directing. Directs attention to stores with either high or low ratios of

advertising expenses to sales.

13. Attention directing or problem solving, depending on the use of the schedule. If it

14. Scorekeeping. Records items needed for financial statements.

5

1-B2 (10-15 min.)

1 & 2. Budget Actual Variance

3. The cost of fireworks was $600 ÷ $40,000 = 1.5% under budget while sales were

just $560 ÷ $80,000 = .7% under budget. Did fireworks suppliers lower their

1-B3 (15 – 20 min.)

1. A code of conduct is a document specifying the ethical standards of an

organization.

2. Different companies include different elements in their codes of conduct. Some of

the items included in companies’ codes of conduct include maintaining a dress

code, avoiding illegal drugs, following instructions of superiors, being reliable

3. Simply having a code of conduct does not guarantee ethical behavior by

employees. Most important is top management’s ethical example and its support

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1-1 Internal managers and external parties use accounting information:

a. Internal reporting is used by managers for planning and controlling operations,

1-2 The emphasis of financial accounting has traditionally been on the historical data

1-4 Scorekeeping is the recording (including accumulation and classification) of data

for a later evaluation of performance. Attention directing is the reporting and

1-5 No. GAAP applies to financial reporting for external users. Internal accounting

reports are not restricted by GAAP.

1-6 Yes, though the act covers more than foreign bribes. The Foreign Corrupt

1-7 Many managers believe that the costs of applying the provisions of the Sarbanes-

1-8 Users cannot easily observe the quality of accounting information. Thus, they

users.

1-9 No. The ethics developed as a student carry over into one’s professional life.

1-10 Public accounting firms, law firms, management consultants, real estate firms,

transportation companies, banks, insurance companies, and hotels are examples of

1-11 Two considerations are cost-benefit balance and behavioral effects. Cost-benefit

balance refers to how well an accounting system helps achieve management’s goals in

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relation to the cost of the system. The behavioral-effects consideration specifies that an

accounting system should be judged by how it will affect the behavior (that is, decisions)

of managers.

1-12 Yes. Measurement and recording is an integral part of management. For

1-13 A budget is a quantitative expression of a plan of action; a performance report

1-14 No. Management by exception means that management directs more attention to

1-15 Information that is relevant for decisions about a product depends on the product’s

1-16 The six functions are: (1) research and development – generation and

(3) production – use of resources to produce a product or service; (4) marketing –

1-17 No. Some functions in the value chain may not be present in some organizations

1-19 Management accountants are the information specialists. In non-hierarchical

companies, they are more directly involved with managers and are often parts of cross-

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1-21 The two parts of the CMA examination are: (1) financial planning, performance,

and control, and (2) financial decision making.

1-22 This is not true. About one-third of CEOs in companies with revenues greater

1-23 Changes in technology are affecting how accountants operate. Increasing

computing capabilities and decreasing computing costs have changed how accountants

1-24 The essence of the just-in-time philosophy is the elimination of waste,

1-25 Moving tools and products that are in process from one location to another in a

(2) confidentiality – refrain from disclosing or using confidential information, (3) integrity

– avoid conflicts of interest, refuse gifts that might influence actions, recognize

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1-28 (5-10 min.)

Typical activities associated with the treasurer function include:

❑ Provision of capital

❑ Investor relations

1-29 (10 – 15 min.)

2. Controller. Advising managers aids operating decisions.

4. Treasurer. Analysts affect the company’s ability to raise capital, which is the

responsibility of the treasurer.

6. Controller. Tax returns are part of the accounting process overseen by the

controller.

8. Treasurer. Allowing credit is a financial decision.

10

1-30 (5-10 min.)

Activities 2, 4, 5, and possibly 6 are primarily associated with marketing decisions.

The management accountant would assist in these decisions as follows:

1-31 (5-10 min.)

Activities 1, 7, and 8 are primarily associated with production decisions.

The management accountant would assist in these decisions as follows:

1-32 (5 min.)

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1-33 (10 min.)

1. Performance Report

Budget Actual Variance Explanation

Revenues $356,400 $351,400 $5,000 U Additional sales

2. Factors that may not have been considered include:

a. Raw material costs for new products may have been higher than budgeted.

1-34 (5 min.)

12

1-35 (30 min.)

Microsoft is a company that most students will know and have some

understanding of what functions its managers perform. Nevertheless, this may not be an

13

1-36 (15-20 min.)

The management accountant’s major purpose is to provide information that helps

line managers plan and control operations and make decisions. The accountant supplies

1-37 (5 min.)

Costs of a poor ethical environment include legal costs and costs due to absenteeism and

1-38 (5 min.)

There are numerous examples.