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Chapter 01 - The Changing Role of Managerial Accounting in a Dynamic Business Environment
1-1
CHAPTER 1
The Changing Role of Managerial Accounting in
a Dynamic Business Environment
ANSWERS TO REVIEW QUESTIONS
1-1 The explosion in e-commerce will affect managerial accounting in significant ways.
One effect will be a drastic reduction in paper work. Millions of transactions between
businesses will be conducted electronically with no hard-copy documentation.
1-2 Plausible goals for the organizations listed are as follows:
Chapter 01 - The Changing Role of Managerial Accounting in a Dynamic Business Environment
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1-3 The four basic management activities are listed and defined as follows:
1-4 Examples of the four primary management activities in the context of a national fast-
food chain are as follows:
1-5 Examples of the objectives of managerial-accounting activity in an airline company
are described below:
(a) Providing information for decision making and planning, and proactively
Chapter 01 - The Changing Role of Managerial Accounting in a Dynamic Business Environment
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1-6 Four important differences between managerial accounting and financial accounting
are listed below:
(a) Managerial-accounting information is provided to managers within the
1-4
1-7 The cost-accounting system is one part of an organization's overall accounting
system, the purpose of which is to accumulate cost information. Cost information
1-8 Managers in line positions are directly involved in the provision of services or the
production of goods in an organization. Managers in staff positions support the
1-9 An organization's controller (or comptroller) is the chief managerial and financial
accountant. The controller usually is responsible for supervising the personnel in
1-10 A college or university could use the balanced scorecard as a management tool just
Chapter 01 - The Changing Role of Managerial Accounting in a Dynamic Business Environment
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1-11 This quote from a managerial accountant at Caterpillar suggests that managerial
accountants are physically located throughout an organization where the day-to-day
1-12 Managerial-accounting information often brings to the attention of managers
important issues that need their managerial experience and skills. In many cases,
1-13 Both manufacturing and service industry firms are engaged in production. The
primary difference between these types of companies is that manufacturing firms
1-14 (a) In a just-in-time (or JIT) production environment, raw materials and components
Chapter 01 - The Changing Role of Managerial Accounting in a Dynamic Business Environment
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1-15 The statement is accurate: capacity supplied in the current period but not used for
production is gone. If a pizza maker is available for four hours to make pizzas but
1-16 CMA stands for Certified Management Accountant. This title is the professional
1-17 (a) Competence: Ongoing development of knowledge and skills, performance of
duties in accordance with relevant laws, adherence to regulations and technical
1-20 Managerial accounting is just as important in nonprofit organizations as it is in
1-21 Becoming the low-cost producer in an industry requires a clear understanding by
Chapter 01 - The Changing Role of Managerial Accounting in a Dynamic Business Environment
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1-22 A professional is a person engaged in a specified occupation that requires advanced
1-23 Some activities in the value chain of a manufacturer of cotton shirts are as follows:
1-24 Strategic cost management is the process of understanding and managing, to the
Chapter 01 - The Changing Role of Managerial Accounting in a Dynamic Business Environment
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SOLUTIONS TO EXERCISES
EXERCISE 1-25 (25 MINUTES)
1. Measuring inventory costs is most closely associated with the first two objectives of
4. Comparing operating statistics such as those mentioned for a hotel is particularly
5. Developing a bonus reward system for managerial personnel is an example of
6. Comparing actual and planned costs is consistent with two objectives of managerial
7. Determining manufacturing costs is related to all of the objectives of managerial
Chapter 01 - The Changing Role of Managerial Accounting in a Dynamic Business Environment
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EXERCISE 1-26 (20 MINUTES)
1. Data about the cost of maintaining the machine weekly or biweekly would be relevant.
3. Estimates of building costs for the library addition as well as estimates of benefits to
4. Estimates of any operating costs associated with the proposed luxury cars would be
EXERCISE 1-27 (30 MINUTES)
Answers will vary widely for this exercise, depending on the company chosen by each
Chapter 01 - The Changing Role of Managerial Accounting in a Dynamic Business Environment
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SOLUTIONS TO PROBLEMS
PROBLEM 1-28 (30 MINUTES)
1. Line activities are primary to the purpose of the organization. They are the activities
that create and distribute the goods and services of the organization. Line reporting
2. a. The division controller is responsible to both the corporate controller and the
division manager. The corporate controller assigns the division controller to the
b. The motivation of the division controller would be affected by this dual reporting
relationship. The division controller is being evaluated by two people whose
Chapter 01 - The Changing Role of Managerial Accounting in a Dynamic Business Environment
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PROBLEM 1-29 (25 MINUTES)
1. Managerial accounting can be of significant benefit when it comes to solving the
company’s problems. Managerial accounting is defined as the process of
identifying, measuring, analyzing, interpreting, and communicating information in
2. Yes, a cross-functional team would be useful in this situation. Several of the
company’s problems affect multiple functional areas within the firm. For example,
3. Maxey’s business is operating in the tourism industry, which is notoriously cyclical.
Chapter 01 - The Changing Role of Managerial Accounting in a Dynamic Business Environment
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PROBLEM 1-29 (CONTINUED)
guides profitably busy. Other times of the year, he has to lay off some of the guides
and some of the rafts sit empty because he offers fewer rafting trips each week. But
PROBLEM 1-30 (45 MINUTES)
1. Allen's considerations are determined largely by her position as an accountant, with
responsibilities to Stereo Technology, Inc. others in the company, and herself.
this matter with the controller's superiors.
2. a. The controller has reporting responsibilities and should protect the overall
company interests by encouraging further study of the problem by those in his or
Chapter 01 - The Changing Role of Managerial Accounting in a Dynamic Business Environment
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PROBLEM 1-30 (CONTINUED)
c. The plant manager and his or her staff have responsibilities for product quality
3. Allen needs to protect the interests of the company, others in the company, and
herself. Allen is vulnerable if she conceals the problem and it eventually surfaces.
PROBLEM 1-31 (25 MINUTES)
1. The balanced scorecard is a business model that helps to assess a firm’s
competitive position and ensures that the firm is progressing toward long-term
2. Functional areas for the airline include marketing, finance, operations (e.g.,
3. Financial measures:
Net income Operating expenses per seat mile
Chapter 01 - The Changing Role of Managerial Accounting in a Dynamic Business Environment
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PROBLEM 1-31 (CONTINUED)
Internal operating measures:
Percentage of on-time arrivals Number of cities/new cities served
Percentage of on-time departures Number of aircraft in fleet
4. Yes. By focusing on only one factor, other important facets of the business are
ignored, which could lead to long-run problems. For example, paying too much
Chapter 01 - The Changing Role of Managerial Accounting in a Dynamic Business Environment
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SOLUTIONS TO CASES
CASE 1-32 (40 minutes)
1. Jennifer Nolan’s ethical responsibilities require that she not tell her friend, Rob
Borman, about SofTech’s cash flow problems. Nolan, as a management accountant,
must comply with the following standards for ethical conduct:
Confidentiality. Nolan must refrain from disclosing confidential information acquired
in the course of her work except when authorized, unless legally obligated to do so.
In this situation, Nolan is neither authorized nor legally obligated to do so.
Integrity. Under this standard for ethical conduct, Nolan has the responsibility to:
2. Nolan has an ethical responsibility to inform SofTech that Borman has decided to
postpone the paper order. As a management accountant, Nolan must comply with
the following standards of ethical conduct:
Integrity. Under this standard for ethical conduct, Nolan has the responsibility to:
3. Nolan should resolve this matter by discussing the situation with her immediate
superior. Nolan should tell her superior of her long-time friendship with Borman.
Chapter 01 - The Changing Role of Managerial Accounting in a Dynamic Business Environment
CASE 1-33
Answers for this case will vary widely, depending on the company chosen and the
particular ethical issues upon which students focus. Every company ethical lapse
