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Solutions Manual, Prologue 1
Prologue
Managerial Accounting: An Overview
Questions
P-1 Financial accounting is concerned with
reporting financial information to external
parties, such as stockholders, creditors, and
regulators. Managerial accounting is concerned
with providing information to managers for use
P-2 Five examples of planning activities
Five examples of controlling activities
P-3 The quantitative analysis would focus on
determining the potential cost savings from
buying the part rather than making it. The
qualitative analysis would focus on broader
issues such as strategy, risks, and corporate
plans into formal quantitative terms. Budgets
are used for various purposes, such as forcing
business students because all managers engage
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2 Managerial Accounting, 16th Edition
use their planning, controlling, and decision-
making skills to help improve performance.
P-7 Deere & Company is an example of a
company that competes in terms of product
P-8 Planning, controlling, and decision
Nike faces the risk that unsatisfactory
environmental performance will diminish its
Steel manufacturers face major risks
related to employee safety, so they create and
monitor control measures related to
occupational safety compliance and
performance.
Procter & Gamble could segment its
performance by product category (e.g., beauty
of total energy usage.
P-13 Companies that use Lean Production
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Solutions Manual, Prologue 3
P-15 Ethical behavior is the lubricant that
keeps the economy running. Without that
P-16 Examples of internal controls over cash
include maintaining a locked cash register,
limiting access to the cash register to one
P-17 You should review a properly authorized
purchase order to verify that the goods were
actually ordered by the company for legitimate
P-18 Examples of control activities over credit
sales and accounts receivable include verifying
P-19 Companies usually count their inventory
on hand once a year, often at the end of their
fiscal year. The purpose of this control activity is
to reconcile the inventory on hand with the
P-20 Using pre-numbered documents reduces
the likelihood of unauthorized transactions.
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4 Managerial Accounting, 16th Edition
Exercise P-1 (30 minutes)
1. Having the boss unilaterally impose a sales budget on the sales
manager is a bad idea for three reasons. First, the boss may not have
access to information possessed by the sales manager that would result
2. The company would probably not be comfortable with having the sales
manager create the budget with no input from her boss. First, the boss
is likely to possess a broad understanding of strategic issues that should
3. If the company used the sales budget for the sole purpose of planning
to deploy resources in a manner that best serves customers, then it is
possible that the boss and the sales manager would both be focused on
4. If the company used the sales budget for the sole purpose of motivating
employees to strive for excellent results, then the boss may be inclined
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Solutions Manual, Prologue 5
Exercise P-1 (30 minutes)
5. If the company used the sales budget for the sole purpose of
determining pay raises, promotions, and bonuses, then the sales
6. When a budget is used to deploy resources, to motivate employees
through the use of stretch goals, and to evaluate and reward
employees, it creates inevitable conflicts. As a resource deployment tool,
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6 Managerial Accounting, 16th Edition
Exercise P-2 (10 minutes)
The student would feel unfairly criticized for unloading 150 pieces of
luggage in 13 minutes. The student would perceive that, according to the
boss’s expectations, he should be able to unload 10 pieces of luggage per
When companies design control systems, they compare actual performance
to some pre-existing expectation. The pre-existing benchmark needs to
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Solutions Manual, Prologue 7
Exercise P-3 (30 minutes)
Examples of Decisions
A
pplication in a University Settin
g
What should we be sellin
g
?
What products and services should
be the focus of our marketing
How should we allocate our
marketing resources among our
What new products and services
Should we introduce a new ma
j
or
What prices should we char
g
e for
What prices should we establish for
Who should we be servin
g?
attracting undergraduate students
versus graduate students?
Who should we start servin
g
? Should we introduce on-line
How should we execute
?
How should we expand our
capacity?
Should we increase our avera
g
e
class size to accommodate more
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8 Managerial Accounting, 16th Edition
Exercise P-4 (20 minutes)
1. Failure to report the obsolete nature of the inventory would violate the
IMA’s Statement of Ethical Professional Practice as follows:
Members of the management team, of which Perlman is a part, are
(Unofficial CMA solution)
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Solutions Manual, Prologue 9
Exercise P-4 (continued)
2. As discussed above, the ethical course of action would be for Perlman to
insist on writing down the obsolete inventory. This would not, however,