Prologue
Managerial Accounting: An Overview
Solutions to 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
include (1) estimating the advertising revenues
for a future period, (2) estimating the total
expenses for a future period, including the
salaries of all actors, news reporters, and
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
are used for various purposes, such as forcing
managers to plan ahead, allocating resources
across departments, coordinating activities
across departments, establishing goals that
motivate people, and evaluating and rewarding
P-7 Deere & Company is an example of a
company that competes in terms of product
leadership. The company’s slogan “nothing runs
like a Deere” emphasizes its product leadership
P-8 Planning, controlling, and decision
making must be performed within the context of
a company’s strategy. For example, if a company
that competes as a product leader plans to grow
P-9 This answer is based on Nike, which has
suppliers in over 40 countries. One risk that Nike
faces is that its suppliers will fail to manage their
employees in a socially responsible manner. Nike
P-10 Airlines face the risk that large spikes in
fuel prices will lower their profitability.
Therefore, they may reduce this risk by
spending money on hedging contracts that
enable them to lock-in future fuel prices that will
not change even if the market price increases.
occupational safety compliance and
performance.
Restaurants face the risk that an
economic downturn will reduce customer traffic
performance by product category (e.g., beauty
and grooming, household care, and health and
well-being), product line (e.g., Crest, Tide, and
Bounty), and stock keeping units (e.g., Crest
Timberland’s corporate slogan of “doing
well by doing good” suggests that the company
publishes CSR reports because it believes that
its financial success (i.e., doing well) is positively
conclusions that ensure unanimous support for a
given course of action is the exception rather
than the rule. Therefore, managers must
possess strong leadership skills if they wish to
channel their co-workers’ efforts towards
achieving organizational goals.
P-15 Ethical behavior is the lubricant that
keeps the economy running. Without that
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
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
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
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
Exercise P-1 (continued)
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,
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
Exercise P-3 (30 minutes)
Examples of Decisions
Application in a University Setting
What should we be selling?
What products and services should
be the focus of our marketing
efforts?
How should we allocate our
marketing resources, among our
undergraduate programs, our
graduate programs, our research
accomplishments, and our athletic
programs?
What new products and services
should we offer?
Should we introduce a new major
for undergraduate students?
What prices should we charge for
our products and services?
What prices should we establish for
our travel abroad programs?
What products and services should
we discontinue?
Should we discontinue our MBA
program?
Who should we be serving?
Who should be the focus of our
marketing efforts?
How much of our marketing budget
should we channel towards
attracting undergraduate students
versus graduate students?
Who should we start serving?
Should we introduce on-line
programs that enable us to serve
customers across the globe?
Who should pay price premiums or
receive price discounts?
How much should we charge for
Who should we stop serving?
Which one of our branch campuses
should we close?
How should we execute?
How should we supply our parts and
services?
What portion of our faculty should
be adjunct faculty?
How should we expand our
capacity?
Should we increase our average
class size to accommodate more
students?
How should we reduce our capacity?
Should we cut costs by eliminating
administrative jobs or faculty jobs?
How should we improve our
efficiency and effectiveness?
Should we increase our research
expectations for our faculty?
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:
Competence
• Perform duties in accordance with relevant technical standards.
Integrity
• Mitigate actual conflicts of interest and avoid apparent conflicts of
interest.
Credibility
• Communicate information fairly and objectively.
(Unofficial CMA solution)
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,
Exercise P-5 (60 minutes)
Company
Strategy
1.
Deere
Product leadership: “Nothing runs like a
Deere”
2.
FedEx
Operational excellence: “When it absolutely,
positively has to be there overnight”
3.
State Farm Insurance
Customer intimacy: “Like a good neighbor,
products that are promptly delivered straight
Charles Schwab
Customer intimacy: “Talk to Chuck”
Exercise P-6 (15 minutes)
Exercise P-7 (20 minutes)
1. If all automotive service shops routinely tried to sell parts and services
to customers that they didn’t really need, most customers would
eventually figure this out. They would then be reluctant to accept the
2. As argued above, if customers could not trust their service
representatives, they would be reluctant to follow the service
representative’s advice. They would be inclined not to authorize work
Exercise P-8 (10 minutes)
The type of cognitive bias revealed by this data is called self-enhancement
bias. This bias occurs when people overstate their strengths and
Exercise P-9 (20 minutes)
The purpose of this exercise is to present students with an opportunity to
debate the ethicality of competing courses of action. Some students may
argue that the ethical choice is to tell the truth when speaking with the
Exercise P-10 (20 minutes)
The purpose of this exercise is to create a platform for students to debate
the merits of the shareholder-focused and stakeholder-focused
philosophies of business management. Student responses are likely to fall
Exercise P-11 (20 minutes)
1. This question gives students a platform for discussing the merits of
extrinsic motivators in organizations. Student responses should differ
2. This question gives students an opportunity to discuss the roles of
intrinsic motivation and extrinsic motivation in organizational
management.
3. This question gives students an opportunity to discuss the
Exercise P-12 (20 minutes)
1. Most students are likely to recommend reinforcing the sections of the
2. Perceptive students may realize that this is a classic case of selection
bias. Selection bias arises when decision makers rely on a sample that is
not representative of the entire population being studied. In this case,
the military was relying on a sample that included only those planes that
Exercise P-13 (20 minutes)
The purpose of this exercise is to present students with an opportunity to
debate the ethicality of competing courses of action. Some students may
argue that the ethical choice is to report all gambling winnings to the