Type:
Solution Manual
Resource:
Managerial Accounting
Edition:
1st Edition
Author(s):
Jennifer Cainas Celina Jozsi Kelly Richmond Pope
Chapter 1 EOC Questions and Solutions Copy edit: All dates should be changed to “2022-2023” throughout, including Ms, EOC, Widget Ms, and Art Ms.
Discussion Questions 1. What is meant by the cost-benefit constraint when developing managerial accounting systems? Difficulty: Easy Time on Task: 3 minutes Objective: LO6 AACSB: Application of knowledge Assignment: Homework Solution: The cost of obtaining the inputs and processing those inputs into information that is concise, easily understandable, and timely must be less than the benefits obtained from the information.
2. Differentiate between operational and strategic information needs. Difficulty: Moderate Time on Task: 4 minutes Objective: LO2 AACSB: Reflective thinking Assignment: Quiz, Test and Homework Solution: Different information is required for strategic and operational decisions. Strategic decisions, which are typically made by upper-level management, require information so that managers can determine with which markets, customers, services, or products they should operate. Operational decisions, in contrast, are typically made by operations management. Those managers require information on how to efficiently and effectively render services or provide product lines. 32
3. What is the difference between effectiveness and efficiency? Difficulty: Easy Time on Task: 3 minutes Objective: LO8 AACSB: Reflective thinking Assignment: Homework Solution: Effectiveness refers to achieving the goals, whereas efficiency relates to the resources used to create the actual results. Using The Lawn Care Company example, if the goal is to cut 30 lawns per month, but you cut only 18, you were not effective in reaching your target. If your costs (in both time and money) were less than anticipated for the 18 lawns that you did cut, you were efficient.
4. What are key differences between financial and managerial accounting? Difficulty: Easy Time on Task: 3 minutes Objective: LO1 AACSB: Application of knowledge Assignment: Homework Solution: Managerial accounting information is designed to provide management with detailed, relevant information that will help determine the future actions of the company. This is in contrast to financial accounting information, which adheres to Generally Accepted Accounting Principles (GAAP) and is used to produce summarized reports based on past performance.
5. Which actions are needed when analyzing and resolving potential ethical problems? Difficulty: Difficult Time on Task: 4 minutes Objective: LO8 AACSB: Application of knowledge Assignment: Homework
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Solution: First, it is important to fully research the relevant facts to obtain a full understanding of the ethical scenario. Then, you must apply a framework such as the Institute of Management Accountants’ (IMA’s) Statement of Ethical Professional Practice, keeping in mind the policies of the company, as well as applicable laws and regulations, to determine what your obligations are so as to maintain the highest standards of ethical conduct. 6. Describe the IMA’s Statement of Ethical Professional Practice. Difficulty: Moderate Time on Task: 6 minutes Objective: LO8 AACSB: Application of knowledge Assignment: Homework Solution: The IMA’s Statement of Ethical Professional Practice serves as a guideline for expected ethical behavior for all accounting professionals. The four main standards under the code of professional conduct require the members of the IMA to exhibit: I. Competence—by maintaining their level of technical expertise in accounting and properly following applicable laws, policies, and procedures. II. Confidentiality—by keeping all company information confidential from outside parties unless authorized or legally required to disclose that information. III. Integrity—by being honest and trustworthy at all times, no matter what the circumstance. IV. Credibility—by presenting information fairly, objectively, and without bias to intended users of the information.
7. Explain the differences between the three means of gathering managerial accounting data. Difficulty: Difficult Time on Task: 5 minutes Objective: LO6 AACSB: Reflective thinking Assignment: Test Solution: The three means of gathering managerial accounting data include (1) direct observation, (2) interviewing, and (3) storyboarding.
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1.
2.
3.
With direct observation, you directly watch and record data. While this approach is perhaps the most accurate, it requires that you spend considerable time observing and tracking. Interviewing requires meeting with individuals familiar with the process. If the people being interviewed are experienced, this approach can yield accurate enough internal information and may require less time to gather than the process of direct observation. Storyboarding requires a facilitator to ask questions of several employees regarding which tasks are performed; the facilitator captures the answers on a board and ensures that all activities are documented according to the consensus of the group. This may be quite time intensive but can yield a more complete and visual picture that would justify the cost involved.
8. Explain the three primary uses of managerial accounting information. Difficulty: Moderate Time on Task: 4 minutes Objective: LO4 AACSB: Application of knowledge Assignment: Homework Solution: Managerial accounting provides the owners and managers of a company with useful information to make decisions in three areas: the cost of a service or product, planning and performance evaluation, and nonroutine special decisions. The information can be financial (in dollars) as well as nonfinancial, such as time, quality, and customer satisfaction.
9. What are three means of gathering managerial accounting data? Difficulty: Easy Time on Task: 3 minutes Objective: LO6 AACSB: Application of knowledge Assignment: Homework Solution: The three means of gathering managerial accounting data are direct observation, interviewing, and storyboarding.
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10. How is management accounting information useful to the three functions of management? Difficulty: Moderate Time on Task: 4 minutes Objective: LO4 AACSB: Reflective thinking Assignment: Homework Solution: To plan, implement, and make decisions successfully, managers use managerial accounting information to create value through the process of identifying, measuring, reporting, and analyzing both financial and operating information for internal users. The output, or reports, generated from the managerial accounting system would also be relevant to managers. It is important that the reports created are easy to understand and ultimately help management make better decisions.
11. How are information needs different for higher and lower levels of management in an organization? Difficulty: Moderate Time on Task: 5 minutes Objective: LO3 AACSB: Reflective thinking Assignment: Homework Solution: Operational-level managers need current, frequent, and perhaps even daily details to make informed, tactical decisions. Some needed information includes the specific costs of materials, labor, other production or direct service costs, and selling and administrative costs. Upper-level managers, in contrast, need summarized, infrequent reports about costs, profitability, innovations, market opportunities and threats, investments, and customer information.
12. The elements of the accounting information system are inputs, processes, and outputs. What are some inputs into the system? Difficulty: Moderate Time on Task: 4 minutes
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Objective: LO6 AACSB: Application of knowledge Assignment: Homework Solution: Inputs are unprocessed data items, including financial numbers, statistics, or other facts. Inputs can be quantitative or qualitative in nature. The data can relate to materials, employees, capacity, financing, suppliers, customers, or product lines.
13. With respect to the processing of managerial accounting information, how can efficiency be achieved with technology? Difficulty: Moderate Time on Task: 4 minutes Objective: LO6 AACSB: Reflective thinking Assignment: Homework Solution: Technology has enabled data to be processed extremely efficiently by using a database program, such as Microsoft Access, or a spreadsheet program, such as Microsoft Excel. Through the implementation of one or more of these programs, mathematical computations are seamless and data can be analyzed, manipulated, or summarized to meet the information needs of management. Additionally, a company can easily perform a “what-if” analysis or sensitivity analysis to show how sensitive calculations can be to certain changes in key assumptions.
14. One output of managerial reporting is an analysis of actual costs or a cost report. Provide three examples of cost items that could be found in a cost report for a bakery. Difficulty: Difficult Time on Task: 8 minutes Objective: LO7 AACSB: Analytical thinking Assignment: Homework Solution: Some items that could be included in a cost report for a bakery are:
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● ● ● ● ●
Cost per customer Cost of inputs into the products (e.g., sugar, butter, flour) Cost of utilities paid by the bakery (e.g., electric, gas, sewer) Depreciation expense Salaries paid to employees (sales associates, bakers, owners)
15. How are a budget and a simple performance report useful to analyze the results of operations? Difficulty: Difficult Time on Task: 5 minutes Objective: LO7 AACSB: Reflective thinking Assignment: Homework Solution: Budget and simple performance reports allow managers to examine the differences between the original plan and the actual results to understand whether the differences are within their control and likely to affect the company in the upcoming period as well. Management uses reports such as these to help identify problems and make changes that will improve results.
16. Besides a cost report, budget, and performance analysis, what are other outputs or tools available to management to achieve operational and strategic goals? Difficulty: Moderate Time on Task: 4 minutes Objective: LO7 AACSB: Application of knowledge Assignment: Test Solution: Although financial reports such as a budget or an income statement are important, information can be illustrated in the form of a chart, graph, or diagram. Often, an illustration can convey the information more clearly and concisely, emphasizing key points that might be buried if the reports contain strictly numerical values.
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17. Give three examples of qualitative information that are relevant in managerial accounting but not captured and reported in financial accounting. Difficulty: Moderate Time on Task: 4 minutes Objective: LO7 AACSB: Reflective thinking Assignment: Quiz Solution: Nonfinancial data would still focus on the company’s critical success factors, but it is not found in a company’s regular accounting system. These metrics can include the quality of suppliers, quality of customer service, and time considerations.
18. Describe the three primary functions of managers within organizations that are necessary for long-term sustainability. Difficulty: Easy Time on Task: 3 minutes Objective: LO7 AACSB: Reflective thinking Assignment: Homework Solution: The three primary functions of managers within organizations include developing a strategic plan for the business, implementing and controlling the business plan, and making informed decisions about the business. 19. Describe the difference between structured and unstructured data. How does big data analysis use structured and unstructured data? Difficulty: Easy Time on Task: 5 minutes Objective: LO5 AACSB: Reflective thinking Assignment: Homework Solution: Structured data is uniform and exists in a record or file. This data is standardized for ease of processing and analysis. For example, transactional data (such as 32
sales revenues) is structured data. Unstructured data is not standardized or cannot easily fit into a relational database. Text data (like comments left on social media sites) is an example of unstructured data. Big data analysis is the process of collecting and analyzing large amounts of digital data (both structured and unstructured) to discover patterns or insights that can be used by managers to make better business decisions. 20. Differentiate between descriptive analytics, diagnostic analytics, predictive analytics, and prescriptive analytics. Difficulty: Easy Time on Task: 5 minutes Objective: LO5 AACSB: Reflective thinking Assignment: Quiz Solution: Descriptive analytics are the simplest form of analytics, and often summarize past trends in the business. Descriptive analytics cannot tell a company why something happened; they only indicate what happened. Diagnostic analytics are used to answer why something happened. Historical data are often measured against other data (both financial and nonfinancial) to drill down and gain a deeper understanding of what has occurred. Predictive analytics help a company determine what is likely to happen in the future. It uses findings from both descriptive and diagnostic analytics to help predict future outcomes with reliable precision. Prescriptive analytics are the most complex form of analytics and suggest future actions the company can take. Prescriptive analytics use advanced business rules and algorithms, statistical modeling, and machine learning to gather and analyze vast amounts of data, determine an action plan, and take corrective actions if necessary.
Exercises
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1. For each of the following decisions or actions, indicate which of the three areas of managerial accounting apply. Select the best option by placing the corresponding letter in the space provided. Areas: a. Product costing b. Planning and control c. Nonroutine decision making Decisions or Actions by Management: i.
Consider opening another store across town
ii.
Identify why production goals were not met
iii.
Evaluate the results of various advertising alternatives
iv.
Determine the direct costs and margin of various product lines
v.
Decide whether to pay bonuses to workers
vi.
Determine how much financing is needed as well as the type of financing
vii.
Forecast what profit will be at different levels of sales
viii.
Evaluate a new technology platform
ix.
Find which process is creating a bottleneck
x.
Measure customer satisfaction
xi.
Buy or lease new equipment
xii.
Submit financial statements to outside users such as shareholders
Difficulty: Moderate Time on Task: 1 minute each Objective: LO4 AACSB: Analytical Thinking Assignment: Varies, see chart below Solution: #
Question
Solu tion
Assign ment
1 (i.)
Consider opening another store across town
c
Quiz
1 (ii.)
Identify why production goals were not met
b
Quiz
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1 (iii.)
Evaluate the results of various advertising alternatives
c
Quiz
1 (iv.)
Determine the direct costs and margin of various product lines
a
Quiz
1 (v.)
Decide whether to pay bonuses to workers
b
Test
1 (vi.)
Determine how much financing is needed as well as the type of financing
c
Test
1 (vii.)
Forecast what profit will be at different levels of sales
b
Test
1 (viii.)
Evaluate a new technology platform
c
Test
1 (ix.)
Find which process is creating a bottleneck
c
Home work
1 (x)
Measure customer satisfaction
b
Home work
1 (xi.)
Buy or lease new equipment
c
Home work
1 (xii.)
Submit financial statements to outside users such as shareholders
a
Home work
2. For each of the following types of information, identify whether the information would be most applicable to financial (F) or managerial (M) accounting. i.
Income statement given to owners (for partnerships) and to shareholders (for corporations)
ii.
Report of the amount of time needed to complete each process, to deliver to customers, and to respond to customer complaints
iii.
Amount of sales by specific geographic locations, customers, and product or service lines
iv.
Tax return filed with Internal Revenue Service
v.
Proposal for additional or new office space
vi.
Department store rating of suppliers with respect to quality and on-time delivery
vii.
For an airline, the amount of time that the airplanes are on the ground, number of delays, and number of empty seats by flights
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viii.
Scheduling and costs of the various construction processes for a house, such as the foundation, framing, and interior finishing work
ix.
For a landscape company, the number of competitors and prices charged by them
x.
For legal firm, the tasks performed by different levels of lawyers and by paralegals
xi.
For a bank, a report differentiating profits between commercial and residential loans
xii.
For a restaurant, the breakdown between direct materials (food), direct labor (food preparers and servers), and indirect costs (electricity, insurance, rent, depreciation) Difficulty: Easy Time on Task: 1 minute each Objective: LO1 AACSB: Analytical Thinking Assignment: Varies, see chart below Solution: Varies, see chart below #
Question
Solu tion
Assign ment
1 (i.)
Income statement given to owners (for partnerships) and to shareholders (for corporations)
F
Quiz
1 (ii.)
Report of the amount of time needed to complete each process, to deliver to customers, and to respond to customer complaints
M
Quiz
1 (iii.)
Amount of sales by specific geographic locations, customers, and product or service lines
M
Quiz
1 (iv.)
Tax return filed with Internal Revenue Service
F
Quiz
1 (v.)
Proposal for additional or new office space
M
Test
1 (vi.)
Department store rating of suppliers with respect to quality and on-time delivery
M
Test
1 (vii.)
For an airline, the amount of time that the airplanes are on the ground, number of delays, and number of empty seats by flights
M
Test
1 (viii.)
Scheduling and costs of the various construction processes for a house, such as the foundation, framing, and interior finishing work
M
Test
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1 (ix.)
For a landscape company, the number of competitors and prices charged by them
M
Home work
1 (x)
For legal firm, the tasks performed by different levels of lawyers and by paralegals
M
Home work
1 (xi.)
For a bank, a report differentiating profits between commercial and residential loans
M
Home work
1 (xii.)
For a restaurant, the breakdown between direct materials (food), direct labor (food preparers and servers), and indirect costs (electricity, insurance, rent, depreciation)
M
Home work
3. For each of the following, indicate whether the statement is True or False. a. Storyboarding is a financial accounting chart of accounts used by major corporations to prepare financial statements. b. If a manager wants to visually report the frequency of supplier returns due to poor quality, wrong shipments, or incorrect prices, the manager could use a histogram to show the relative results. c. Lower level managers typically would receive frequent reports identifying issues such as employee absences, unused warehouse capacity, machine stoppage incidents, information security breaches, and vendor problems. d. Higher level managers typically would receive daily reports identifying payments made by each customer, number of on-time deliveries to customers, and surveys of customer satisfaction. e. If a company sends all outgoing correspondence by certified mail, the results would probably be very effective, but not efficient. f.
If a sales call center employee answers customer complaints more quickly per call than budgeted, but many customers have to call back because the employee did not properly resolve the customer’s concern or problem, the employee was efficient but ineffective.
g. Projections of class enrollment for the upcoming period by a college would be recorded and reported under both financial and managerial accounting. h. The number of defective units in a manufacturing plant would be relevant for managerial accounting, but would not be reported under financial accounting. i.
Managerial accounting emphasizes relevant data, cost-benefit analysis, and both quantitative and qualitative data.
j.
Manufacturers and retailers primarily use managerial accounting, but service firms do not need managerial accounting because they do not have products or inventory.
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k. Predictive analytics is the simplest form of analytics, and often summarizes past trends in the business. l.
Text data (like comments left on social media sites) is an example of unstructured data.
Difficulty: Varies, see chart below Time on Task: 1 minute Objective: Varies, see chart below AACSB: Analytical Thinking Assignments: 3(a), 3(c) and 3(d) Quiz. 3(f), 3(g) and 3(h) Test. All others Homework. Solution: Varies, see chart below #
Question
Solution
Diffi culty
LO
3 (a)
Storyboarding is a flowchart financial accounting chart of accounts system technique used by major corporations to prepare financial statements.
False
Mod erate
6
3 (b)
If a manager wants to visually report the frequency of supplier returns due to poor quality, wrong shipments, or incorrect prices, the manager could use a histogram to show the relative results.
True
Easy
6
3 (c)
Lower level managers typically would receive frequent reports identifying issues such as employee absences, unused warehouse capacity, machine stoppage incidents, information security breaches, and vendor problems.
True
Easy
3
3 (d)
Higher- level managers typically would receive daily reports identifying payments made by each customer, number of on-time deliveries to customers, and surveys of customer satisfaction.
False
Easy
3
3 (e)
If a company sends all outgoing correspondence by certified mail, the results would probably be very effective, but not efficient.
True
Easy
8
3 (f)
If a sales call center employee answers customer complaints more quickly than budgeted, but many customers have to call back because the employee did not properly resolve the customer’s concern or problem, the employee was efficient but ineffective.
True
Diffic ult
8
3 (g)
Projections of class enrollment for the upcoming period by a college would be recorded and reported under both financial and managerial accounting.
False
Mod erate
1
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3 (h)
The number of defective units in a manufacturing plant would be relevant for managerial accounting, but would not be directly reported under financial accounting.
True
Easy
1
3 (i)
Managerial accounting emphasizes relevant data, cost-benefit analysis, and both quantitative and qualitative data.
True
Easy
1
3 (j)
Manufacturers and retailers primarily use managerial accounting, but service firms do not need managerial accounting because they do not have products or inventory.
False
Mod erate
4
3 (k)
Predictive analytics is the simplest form of analytics, and often summarizes past trends in the business.
False
Mod erate
5
3 (l)
Text data (like comments left on social media sites) is an example of unstructured data.
True
Mod erate
5
4. Suppose you are a recent accounting graduate and begin work for a well-known consulting firm, Shady Deals, Inc. As you are preparing the final journal entries and the financial statements for the year ended 12/31, you notice that the company is operating at a net loss of approximately $25,000 for the year. When you give the financial statements to your boss, the controller, he tells you to record some consulting revenue as of 12/31, since you knew you were going to perform these services for your customer in January. In addition, he tells you to wait to book certain expenses until January, when the bills are paid. a. What are the ethical considerations with this situation? b. If you were to follow your boss’s instructions, would you be violating the IMA’s Statement of Ethical Professional Practice? If so, which standards would you be violating? c. What should you do in this situation?
Difficulty: Difficult Time on Task: 15 minutes Objective: LO8 AACSB: Ethical understanding and reasoning Assignment: None Solutions: a. As an accountant, the primary function of your role is to ensure financial information is accurate and fairly represents the financial condition of the company. You must consider whether making the adjustments to revenue and expenses would alter the financial reports in a way that causes them
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to be inaccurate. The users of the financial statements will make decisions based on the information within them, and their decisions may change based on the adjustments suggested by the controller. Further, these adjustments could result in fraud. Fraud would occur if a user suffered a loss based on reliance on the statements because they contain false information about material (significant) fact(s) and there was an intent to deceive. b. Yes, you would be violating three standards outlined in the IMA’s Statement of Ethical Professional Practice: integrity, credibility, and competence. The integrity standard requires members to be honest and trustworthy at all times, no matter what the circumstance. If you record these entries, even though you are being asked to do so by your boss, you are not being honest and trustworthy and, therefore, lack integrity. Further, you will lack credibility because you did not present information fairly, objectively, and without bias. Finally, you violated the competence standard as there are two violations of Generally Accepted Accounting Principles (GAAP). (1) Revenue should be recorded when services are provided to customers, which occurs in January. (2) Expenses should be recorded when incurred, not when paid. Therefore, expenses should be recorded in December. Recording both of those journal entries would result in profit appearing higher than it actually is and would be misleading to users of the financial statements. c. You should discuss your concerns with your boss. You should mention that you believe the financial statements may be inaccurate if these adjustments are made and you do not want to act without integrity or credibility. If your boss dismisses your concerns, you should report the misleading journal entries to a whistleblower hotline or internal counsel, if available.
Problems 1. Refer to the lawn service company illustration in the chapter. Assume that the company wanted to offer an additional line of service covering fumigation, fertilizing, and landscaping. What information should the manager obtain? Try to be specific. Difficulty: Moderate Time on Task: 10 minutes Objective: LO3, LO5
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