978-0133058789 Chapter 1 Part 2

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1-39 (15-20 min.)

1. The focus of management accounting is on helping internal users make better

decisions, whereas the focus of financial accounting is on helping external users

2. Generally accepted accounting principles constrain financial accounting but not

management accounting. For example, if an organization wants to account for

assets on the basis of replacement costs for internal purposes, no outside agency

3. Budgets, the formal expressions of management’s plans, are a major feature of

4. An important use of management accounting information is the evaluation of

performance, providing incentives, and feedback to improve future decisions.

5. Accounting systems have an enormous influence on the behavior of individuals

1-40 (10 min.)

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When flat fees are being received for different products or services, it is essential for the

hospital to have detailed knowledge of the cost of each product or service. Accurate cost

1-41 (10 min.)

Paperwork and systems often seem to become ends in themselves. However, the

rationale that should underlie systems design is the cost-benefit philosophy that is implied

in the quotation. The aim is for the improvement in revenue and/or reduction in costs due

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1-42 (10 min.) Financial information is important in all companies. But how

managers get and use financial information can differ depending on the culture and

philosophies of the company.

Top executives of a company often represent a functional area critical to the

1-43 (10-15 min.)

1. Boeing’s competitive environment and manufacturing processes changed greatly

in recent years. An accounting system that served them well in their old

2. A cost-benefit criterion was probably used. Boeing’s management may not have

quantified all the costs and benefits, but they certainly assessed whether the new

3. More accurate product costs will usually result in better management decisions.

But if the cost of the accounting system that produces the more accurate costs is

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1-44 (10 min.)

1. There are many possible activities for each function of Nike’s value chain. Some

possibilities are:

Research and development — Determining changes in customers’ tastes and

preferences for shoes and sportswear to come up with new products (maybe the

2. Accounting information that aids managers’ decisions includes:

Research and development — Trends in sales for various products, to determine

which are becoming more and less popular.

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1-45 (10-15 min.) This problem can lead to a long discussion. Pointing out the

problems can be done reasonably quickly but formulating solutions can take much

longer.

1. The appropriate accounting information presented correctly should be helpful to

managers. It is clear that Belton does not regard the accounting performance

reports as helpful. Some key problems are:

• Belton refers to “their” budget, meaning that the budget belongs to the

controller’s department, not him and his department. Managers should be

2. Veracruz has major problems. Her first task is to get the cooperation of Belton

and his subordinates. This will probably involve changing the accounting reports

received by the line managers, and it will certainly involve changes in how these

reports are presented and used. If the reports are not useful, she needs to find out

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1-46 (10-15 min.)

Accountants become the information experts in many companies. In a company

such as Marmon, with its varied subsidiaries, the accounting system provides a link

between the various operating companies. The accountants provide information about

the operations of an individual unit, and they also show how the units fit together as parts

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1-47 (10-15 min.)

1. Brigham’s decisions violate standards of competence and integrity. Competence

is violated because the most competent persons apparently are not being hired,

2. Merton’s first step normally would be to discuss this situation with his boss.

However, because the alleged unethical behavior is by his boss and Merton has

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1-48 (15-20 min.)

1. Because of the standard of confidentiality, the information in the geologist’s

report should not be revealed.

3. This is a difficult ethical problem, one that deserves discussion. Two ethical

standards apparently conflict. Confidentiality would lead to nondisclosure,

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1-49 (15-25 min.)

1) Environment – Evaluation of environmental disclosure, environmental policies

2) Climate Change – Climate change disclosure (including the Carbon Disclosure Project,

3) Human rights – Evaluation of disclosure, policy (including codes of conduct and

4) Employee relations – Evaluates unionization rates, publicly disclosed employee

5) Corporate governance – A majority of a board of directors and key committees of the

board must be independent of management. In addition, ratings include general board

6) Philanthropy – Includes corporate giving that has a substantial and positive impact on

7) Financial – Evaluates the three-year return on investment in the company stock, based

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1-50 (10-15 min.)

1. Line authority is held by those managers directly responsible for the production

and sales of goods or services. Staff authority is held by persons who have an

indirect responsibility for the production and sale of goods and services. Staff

members provide expertise, advice, and support for line positions; line managers

ideas.

2. Chen has a staff position, providing advice to the controller. His main conflicts

will probably arise with the chief accountant and the managers under him. He

reports to the chief accountant’s superior, but he prepares reports that affect

operations in the chief accountant’s area of responsibility.

Paperman is in a staff position because accounting is not directly involved with

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1-51 (20-30 min.)

1. In accordance with Exhibit 1-7, IMA Statement of Ethical Professional Practice,

management accountants should not condone the commission of acts by their

organization that violate the standards of ethical conduct. The specific standards

that apply are:

2. In accordance with Exhibit 1-7, the first alternative being considered by Rachel

O’Casey, seeking the advice of her boss, is appropriate. To resolve an ethical

conflict, the first step recommended is to discuss the problem with the immediate

superior, unless it appears that this individual is involved in the conflict. In this

levels.

3. Assuming there is no established company policy in place to resolve the conflict,

O’Casey should report the problem to successively higher levels of management

until it is satisfactorily resolved. There is no requirement for O’Casey to inform

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O’Casey could also clarify the situation by confidential discussion with an

objective advisor to obtain an understanding of possible courses of action. If the

conflict is not resolved after exhausting all courses of internal review, O’Casey

may have no other recourse than to resign from the organization and submit an

informative memorandum to an appropriate representative of the organization.

1-52 (15-25 min.) These answers are based on information in the Nike 10K for the

year ended May 31, 2011.

1. Nike’s principal business activity is the design, development and worldwide

3. Nike’s CFO is Donald W. Blair. He came to Nike from Pepsico in 1999. Before

4. Nike manufactures 39 percent, 33 percent, 24 percent and 2 percent of total NIKE

brand footwear in Vietnam, China, Indonesia, and India, respectively. Almost all

1-53 (20-30 min.) For the solution to this Excel Application Exercise, follow the step-

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1-54 (90 min. or more)

The purpose of this exercise is to learn about the practice of management

accounting. Students often have the mistaken impression that accountants sit in the back

room and prepare reports. These articles illustrate the varied skills and abilities that are

1-55 (30-45 min.) NOTE TO INSTRUCTOR: This solution is based on the web site

1. The Institute of Management Accountants is “to provide a forum for research,

finance.”

2. The IMA offers more than 300 NASBA-approved courses on topics from

general finance and accounting standards to strategic management.

3. The IMA has a detailed code of ethics. It specifies accountants’ obligations to

the public, their profession, their organization, and to themselves. It also