Chapter 01: Introduction to Cost Accounting IM 8
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in part.
b. The controller is responsible for delivering to management financial reports in conformity
with GAAP and is considered a staff position.
c. The CFO is responsible for all financial activities of an organization and is considered a
member of line personnel.
4. Management style, the way managers interact with the entity’s stakeholders, especially
encourage change, and employee development.
5. Organizational culture refers to the basic manner in which the organization interacts with its
6. Short-term organizational constraints that may be overcome by existing business opportunities:
b. Intellectual capital, which encompasses the knowledge, skills, and information that an
organization possesses, impacts the firm’s ability to create ideas for products or services, to
c. Technology. Companies must adopt emerging technologies to stay at the top of their
7. An environmental constraint is any limitation caused by external cultural, fiscal (such as
LO. 5 What is a value chain, and what are the major value chain functions?
F. Value Chain
1. The value chain is a set of value-adding functions or processes that convert inputs into products
and services for the organization’s customers (See text Exhibit 1.6 (p. 9)):
b. Design—developing alternative product, service, or process designs.
d. Production—acquiring and assembling resources to produce a product or render a service.
f. Distribution—delivering a product or service to a customer.
2. Cost accountants help design the communication network that is used to communicate corporate
strategy to all members in the value chain so that the strategy can be effectively implemented.
Chapter 01: Introduction to Cost Accounting IM 9
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in part.
LO.6 How is a balanced scorecard used to implement an organization’s strategy?
G. Balanced Scorecard
1. Firms use a portfolio of lag and lead indicators to determine not only how the organization has
performed in the past but also how it is likely to perform in the future.
or future actions.
b. Lead indicators which reflect future financial and nonfinancial outcomes (including
making before lag indicators are known.
2. Organizations often use both lead and lag indicators in a balanced scorecard to assess strategy
congruence.
3. The balanced scorecard (BSC) is a framework that restates an organization’s strategy into clear
employees, and shareholders.
4. The BSC includes long-term and short-term, internal and external, financial and nonfinancial
5. As illustrated in text Exhibit 1.7 (p. 11), the balanced scorecard has four perspectives:
expectations through product or service innovations.
b. The internal business perspective focuses on those things that the organization needs to
c. The customer value perspective addresses how well the organization is doing relative to
about profitability and organizational growth.
6. See text Exhibit 1.8 (p. 12) for a more realistic and more complicated balanced scorecard.
H. Professional Ethics
1. Managers achieve their financial targets by concentrating on acquiring a targeted market
2. However, executives at some companies (e.g., WorldCom, Enron, Tyco, and HealthSouth)
Chapter 01: Introduction to Cost Accounting IM 10
a. Earnings management involves using an accounting method or practice to deliberately
adjust a company’s profit amount to meet earnings estimates, preserve a specific
illegal transactions, for example.
b. Aggressive Accounting involves exceeding the boundaries of reason in applying
3. The Sarbanes-Oxley Act of 2002 was passed to hold CEOs and CFOs personally
a. Under SOX, chief financial officers who knowingly certify false financial reports may be
4. Certified Management Accountants (CMA) must adhere to the standards of ethical conduct
5. The IMA’s Code of Ethics (See text Exhibit 1.9 (pp. 13–14)) has four standards:
practice their profession.
b. Confidentiality means that individuals will refrain from disclosing company information to
company’s code of ethics.
c. Integrity means that individuals will not participate in activities that would discredit their
company or profession.
6. Cost and management accountants who discover illegal or immoral behavior such as
a. The accountant should keep the information confidential and report it to his/her
b. The accountant should continue up the chain of command to the first manager who is not
c. If the matter cannot be resolved, the only recourse available may be to resign and consult
d. In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed
LO.8 Why is ethical behavior so important in organizations?
I. Ethics in Multinational Corporations
Chapter 01: Introduction to Cost Accounting IM 11
publicly accessible website, in whole or in part.
parameters within countries in which the multinational operates.
3. The Organization of Economic Cooperation and Development (OECD) has released a document
including the United States.
b. Signing the OECD convention illustrates that companies globally are beginning to
Chapter 01: Introduction to Cost Accounting IM 12
Multiple Choice Questions
1. (LO.1) Select the incorrect comparison between financial and management accounting:
Financial Accounting Management Accounting
a. Primary focus External Internal
a. Public Company Accounting Oversight Board.
3, (LO.1) The acronym IASB stands for
a. Internal Accounting Standards Board.
accounting.
c. a system that provides product cost information to Internal managers for planning,
5. (LO.2) Statements on Management Accounting (SMA) are directives on the practice of
following.
a. SMAs are issued by the Cost Accounting Standards Board.
a. Competency
b. Integrity
7. (LO.7) The IMA Code of Ethics requires a management accountant to follow the established
policies of the organization when facing an ethical conflict. When management accountants fail
d. contact the chief financial officer.
Chapter 01: Introduction to Cost Accounting IM 13
8. (LO.7) According to the IMA Code of Ethics a practitioner has the responsibility to recognize
included?
a. Competency
9. (LO.3) Strategic planning includes all of the following except:
a. top-level management participation.
10. (LO.3) The strategy that is being used by a company that seeks to provide superior quality
products or more unique services than its competitors is a
a. cost leadership strategy.
11. (LO.4) All of the following are staff personnel except:
a. production supervisor.
a. political capital.
b. qualitative capital.
13. (LO.5) All of the following are examples of upstream functions in the value chain except
a. supply.
a. Customer perspective
b. Learning and growth perspective
15. (LO.8) Which of the following is a violation of the Foreign Corrupt Practices Act?
a. Paying cash bribes to foreign officials
d. All of the above
Chapter 01: Introduction to Cost Accounting IM 14
publicly accessible website, in whole or in part.
Multiple Choice Solutions
1. b
2. a
3. d
4. d
5. a
10. b
11. a