Chapter 1
Managerial Accounting: An Overview
Solutions to Questions
1-1 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
1-2 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
1-3 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
use their planning, controlling, and decision-
making skills to help improve performance.
1-7 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
1-8 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
1-9 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
1-10 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.
Steel manufacturers face major risks
related to employee safety, so they create and
monitor control measures related to
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.
1-15 Ethical behavior is the lubricant that
keeps the economy running. Without that
lubricant, the economy would operate much less
efficiently—less would be available to
Appendix 1A
Corporate Governance
Solutions to Questions
1A-1 Example of control activities include (1)
watching high school athletes play prior to
recruiting them, (2) scouting opponents prior to
playing them, (3) monitoring each student-
athlete’s classroom and study hall attendance,
(4) conducting flexibility and weight training for
1A-2 Examples of control activities include (1)
each class, and (5) participating in extra-
curricular activities that build skills important to
employers.
1A-3 Examples of control activities include (1)
installing fire, radon, and carbon monoxide
(4) storing all potentially harmful products in
safe locations away from children, (5) reducing