Type:
Solution Manual
Resource:
Introduction to Management Accounting
Edition:
17th Edition
Author(s):
Charles T. Horngren Gary L. Sundem William O. Stratton Dave Burgstahler Jeff O. Schatzberg
Chapter 1 Managerial Accounting, the Business Organization, and Professional Ethics LEARNING OBJECTIVES: When your students have finished studying this chapter, they should be able to: 1. 2. 3. 4. 5. 6. 7.
Explain why accounting is essential for decision makers and managers. Describe the major users and uses of accounting information. Explain the role of budgets and performance reports in planning and control. Describe the cost-benefit and behavioral issues involved in designing an accounting system. Discuss the role accountants play in the company’s value-chain functions. Identify current trends in management accounting. Explain why ethics and standards of ethical conduct are important to accountants.
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CHAPTER 1:
ASSIGNMENTS
CRITICAL THINKING EXERCISES 28. Finance and Management Accounting 29. Accounting’s Position in the Organization: Controller and Treasurer 30. Marketing and Management Accounting 31. Production and Management Accounting EXERCISES 32. Management Accounting and Financial Accounting 33. Planning and Control, Management by Exception 34. Line Versus Staff and Value Chain Responsibility 35. Microsoft’s Value Chain 36. Objectives of Management Accounting 37. Cost-Benefit of the Ethical Environment 38. Early Warning Signs of Ethical Conduct PROBLEMS 39. Management and Financial Accounting 40. Use of Accounting Information in Hospitals 41. Costs and Benefits 42. Importance of Accounting 43. Changes in Accounting Systems 44. Value Chain 45. Role of Controller 46. The Accountant’s Role in an Organization 47. Ethics and Accounting Personnel 48. Ethical Issues 49. Hundred Best Corporate Citizens CASES 50. 51. 52.
Line and Staff Authority Professional Ethics and Toxic Waste Information in Nike’s 10k Report
EXCEL APPLICATON EXERCISE 53. Budgets and Performance Evaluation COLLABORATIVE LEARNING EXERCISE 54. The Future Management Accountant INTERNET EXERCISE 55. Institute of Management Accountants (www.ifac.org)
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CHAPTER 1: I.
OUTLINE
Management Accounting and Your Career A.
{L. O. 1}
Certified Management Accountant Financial accounting has long provided auditing positions that are typically staffed by Certified Public Accountants (CPAs) in the United States and chartered accountants (CAs) in many other nations. The certified management accountant (CMA) designation is the management accountant’s counterpart to the CPA. There are three key professional qualifications providing routes into accounting: ACA (Institute of Chartered Accountants), ACCA (Association of Chartered Certified Accountants), and CIMA (Chartered Institute of Management Accountants). Each of these qualifications is globally recognized. Each course can take 3 to 5 years.
B.
Training for Top Management Positions In addition to preparing you for a position in an accounting department, studying accounting, and working as a management accountant, can prepare you for the very highest levels of management, such as CEO. Users of Accounting Information In general, users of accounting information fall into two general categories. 1. Internal managers who use information for day-to-day operating decisions and for long-range strategic decisions, and 2. External parties, such as investors and government authorities, who use the information for making decisions about the company. The internal managers make use of Management Accounting information whereas the external parties make use of Financial Accounting information. See EXHIBIT 1-1 for the major distinctions between these two types of accounting information.
II.
Roles of Accounting Information A.
{L. O. 2}
Accounting System—a formal mechanism for gathering, organizing, and communicating information about an organization’s activities. A good accounting system helps an organization achieve its goals and objectives by helping to answer three types of questions. 1. 2.
Scorecard Questions (Am I doing well or poorly?)—accumulation and classification of data, Attention-Directing Questions (Which problems should I look into?)— focuses on operating problems and opportunities, and
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3.
III.
Problem-Solving Questions (Of the several ways of doing the job, which one is best?)—quantifies the likely results of possible courses of action for long-range planning.
Management by Exception A.
{L. O. 3}
The Nature of Planning and Controlling The management process is a series of activities in a cycle of planning and control with Decision Making—the purposeful choice from among a set of alternative courses of action designed to achieve some objective, as the core. Planning—the setting of objectives and outlining how they will be attained. Controlling—the implementation of plans and using feedback to attain objectives. Planning determines action, action generates feedback, and feedback influences further planning and possible corrective actions. EXHIBIT 1-2 shows that the accounting system formalizes plans by expressing them as budgets. A budget is a quantitative expression of a plan of action. Budgets are the chief devices for compelling and disciplining management planning. Performance Reports—provide feedback by comparing results with plans and by highlighting Variances (i.e., deviations from plans). The accounting system records, measures, and classifies actions in order to produce performance reports. See EXHIBIT 1-3 for an example of a performance report for a hypothetical store, the Mayfair Starbucks. Management by Exception—concentrating on areas that need attention and ignoring areas that appear to be running smoothly. Managers use performance reports to investigate exceptions (i.e., items for which actual amounts differ significantly from budgeted amounts). Operations are then brought into conformity with plans, or the plans are revised.
B.
Influences on Accounting Systems An accounting system is a formal mechanism for gathering, organizing, and communicating information about an organization’s activities. In the European Union and more than 100 countries worldwide, companies must comply with International Financial Reporting Standards (IFRS). In the United States (and select other countries), reports for external users are bound by generally accepted accounting principles (GAAP) and legal requirements. The auditor must make a judgment as to whether the financial statements of the company comply with the approved accounting standard and that they are a true and fair view of the situation. The auditor’s role is to express an opinion on the financial statements; it is the responsibility of the company directors to prepare and present the financial statements and to set in place any internal controls, policies to protect
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and make the most efficient use of an organization’s assets. Because government agencies have legal power to order into evidence any internal document that they deem necessary, internal accounting systems may be affected by government regulation. An example is the way universities and defense contractors must allocate their costs to government contracts. As of January 2021, all U.K. companies are required to use U.K.-adopted international accounting standards (IAS) as opposed to those adopted by the EU. Management Audit—a review performed by internal auditors of profit-seeking organizations and governmental agencies to determine whether the policies and procedures specified by top management have been implemented. Under the Companies Act 2016 in Malaysia, it is a requirement of all public listed companies, private limited companies, and branch offices in Malaysia to appoint an approved auditor to audit the accounts of the company. IV.
Cost-Benefit and Behavioral Considerations
{L. O. 4}
Cost-Benefit Balance—weighing estimated costs against probable benefits. This is the primary consideration in choosing among accounting systems and methods. The value of a system must be seen as exceeding its cost. Behavioral Implications—the accounting system’s effects on the behavior (decisions) of managers. A system that managers believe in and trust will be used more in making decisions than one they distrust.
V.
Planning and Control for Product Life Cycles and the Value Chain
{L. O. 5}
Product Life Cycle—the various stages through which a product passes: from conception and development; introduction into the market; maturation; and, finally, withdrawal from the market. In the planning process, managers must determine revenues and costs over the entire life cycle. Accounting also needs to track actual costs and revenues throughout the life cycle. Periodic comparisons between planned costs and revenues and actual costs and revenues allow managers to assess the current profitability of a product, determine its current life-cycle stage, and make any needed changes in strategy. See EXHIBIT 1-4 for a typical product life cycle. The Value Chain—set of business functions that add value to the products or services of an organization. These functions, not of equal importance, include research and development, design of products or services, production, marketing, distribution, and customer service. See EXHIBIT 1-5 for a depiction of business functions’ value chain. VI.
Accounting’s Position in the Organization
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A.
Line and Staff Authority Line Authority—authority extended downward over subordinates. Staff Authority—authority to advise but not command. It may be exerted downward, laterally, or upward. See EXHIBIT 1-6 for how a traditional manufacturing company divides responsibilities between line and staff managers. Line Departments are those that are central to the mission of the organization, whereas Staff Departments lend support and service to the line department. See EXHIBIT 1-6 for a partial organizational chart of a manufacturing company. Although controllers have a staff role, they are generally empowered by the firm’s president to approve, install, and oversee the organization’s accounting system to assure uniform accounting and reporting methods.
B.
Controller and Treasurer Functions The chief financial officer (CFO), the top executive who deals with all finance and accounting issues in an organization, oversees the accounting function in most organizations. The controller (or comptroller in a government organization) is the top accounting officer in an organization. This executive, like virtually everyone in an accounting function, fills a staff role, whereas sales and production executives and their subordinates fill line roles. The duties of Treasurer include provision of capital, investor relations, short-term financing, banking and custody, credits and collections, investments, and risk management (insurance).
VI.
Adaptation to Change {L. O. 6} As decisions change, demands for information change. Accountants must adapt their systems to the changes in management practices and technology. Four major trends are influencing management accounting today: 1. 2. 3. 4. A.
Shift from a manufacturing to a service-based economy Increased global competition Advances in technology Changes in business process management
Service Sector The characteristics of service organizations include the following: 1. Labor is a major component of costs 2. Output is usually difficult to measure 3. Service organizations cannot store their major inputs and outputs
B.
Global Competition
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