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CHAPTER 1
INTRODUCTION TO COST ACCOUNTING
QUESTIONS
1. Management accounting stresses the informational needs of internal users over those
of external users (the focus of financial accounting). Because of this perspective,
management accounting provides information in a format that is flexible and relevant
2. It is more important to have legally binding cost accounting standards for defense
rable. With specified cost accounting standards, there is a higher probability
3. A mission statement is important to an organization because it provides a clearly
itself” and find that it is engaging in activities that are not, and can never be, part of
what it wants to do.
4. Organizational strategy is the link between a firm’s goals and objectives and its oper-
goals, objectives, opportunities, and constraints.
5. Core competencies are the special proficiencies possessed and valued by an organiza-
a core competency in web design or web security. Similarly, a growth strategy would
volunteers or donors.
6. Although polluting might be less expensive in the short run, there is no guarantee that
such a low-cost tactic may continue in the long run, especially if fines are incurred or
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additional legal regulations are enacted that would require retroactive cleanup. Being
green may be viewed from a self-serving standpoint: a proactive green strategy may
pay a bit more for products that are nondamaging to the environment and could cause
an organization to refocus on a product differentiation strategy that might be more
profitable than a low-cost strategy.
7. Authority is the right, generally because of position or rank, to use resources to ac-
authority must accompany responsibility or the assignment of responsibility cannot
endure.
8. This statement is false. All firms have capital constraints, although the constraints are
with the new investment relative to the firm’s existing investments. As the perceived
ate with the new funds.
9. Workforce diversity may affect organizational culture because the work ethic of indi-
vidual workers may be less homogeneous, communication may become more diffi-
Some potential benefits of workforce diversity include an opportunity to reduce prej-
udices, having workers who prefer different holiday schedules (minimizing the need
for closure for specific holidays), and having workers who have different workplace
characteristics (for example, some cultures may prefer to work in groups; others
alone). Some potential difficulties of workforce diversity include the possibility of
10. A change in laws or regulations may remove a constraint to competition or to a par-
ticular strategy. For example, the cost of labor has traditionally been much lower in
Mexico than elsewhere in North America. However, tariffs and taxes have historical-
Chapter 1 3
accessible website, in whole or in part.
ly constrained the extent to which American and Canadian businesses could exploit
11. An organization’s value chain is the set of processes that converts inputs into prod-
jective when managers strategize relative to the structure of the value chain.
12. The balanced scorecard is a framework that restates an organization’s strategy into
clear and objective performance measures. The balanced scorecard is used to evaluate
al financial performance measures, such as ROI, alone are insufficient to assess
how the firm is doing and what specific actions must be taken to improve perfor–
and objectives.
13. Operating in a global environment means that more decision and control variables
must be tracked. For example, a firm operating in many countries must track variables
aware of communication differences among languages. For example, product names
may not “translate” equally well into different languages. In the pharmaceutical indus-
.com/features_effect.asp?pf_id=243).
Some other valuable information for the global firm would be currency exchange
generating an optimal return on capital.
14. The purpose of this question is to get students to think about the role of laws and eth-
ics in conducting business. Among the important points that should be made in the
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accessible website, in whole or in part.
(http://www.doingbusiness.org/data/exploreeconomies/venezuela). There have been
currency devaluations, power and water rationing, nationalization of organizations,
sues for a U.S. company.
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accessible website, in whole or in part.
EXERCISES
15. a. The bank would want information about the firm’s ability to repay the loan. Poten-
tially, the loan could be repaid from either of two sources: (1) by liquidating assets
that are not crucial to business operations or (2) from future operating cash flows.
Consequently, the most useful items of information would be a balance sheet, in-
Information about accounts receivable turnover, or the average time to collect ac-
counts receivable, can be determined by examining the history of accounts receiv-
A trend for supplier price and labor cost increases can be assessed by examining
Qualitative information that would interest the bank might include the character of
the partners, their history in handling borrowed funds, management skills in the
this way, these documents, that comprise part of the accounting system, can be
used to track such nonfinancial data.
Price changes are usually justified on the basis of one or more of the following: (1)
production described in justification (4) can be found from accounting records and
documents.
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For example, by examining labor time and costs over time, one can assess trends in
time to complete specific types of jobs and labor cost increases. Labor cost data
may be obtained by examining personnel and payroll records of partners, manag-
Prices of specific, routine inputs can be obtained from supplier invoices and pur-
c. Most of the data can be gathered directly from the accounting records or from the
documents that support the accounting records such as original transaction docu-
16. a. Each student will have a different answer; however, the following items may be
mentioned:
Then
Now
“Number cruncher”
Decision support specialist
Staff member with limited
“Business partner”
responsibilities
Controller of costs
Analyst of costs
Provider of internal reports
Developer of models
Impediment to change
Implementer of change
Provider of data
Provider of information
Work in relative isolation
Member of cross-functional
teams
Accountant
Member of the finance function
Reactive
Proactive
ants: