Solution Manual for Managerial Accounting Creating Value in a Dynamic Business Environment, 12th Edition
SOLUTION MANUAL FOR MANAGERIAL ACCOUNTING: CREATING VALUE
IN A DYNAMIC BUSINESS ENVIRONMENT, 12TH EDITION, RONALD
HILTON, DAVID
Prepare for your exams
Study with the several resources on Docsity
Earn points to download
Earn points by helping other students or get them with a premium plan
Guidelines and tips
Prepare for your exams
Study with the several resources on Docsity
Earn points to download
Earn points by helping other students or get them with a premium plan
Community
Ask the community
Ask the community for help and clear up your study doubts
University Rankings
Discover the best universities in your country according to Docsity users
Free resources
Our save-the-student-ebooks!
Download our free guides on studying techniques, anxiety management strategies, and thesis advice from Docsity tutors
Solution Manual for Managerial Accounting Creating Value in a Dynamic Business Environment, Exams of Managerial Economics
Solution Manual for Managerial Accounting Creating Value in a Dynamic Business Environment, 12th Edition
Typology: Exams
2023/2024
1 / 63
This page cannot be seen from the preview
Don't miss anything!
Related documents
Partial preview of the text
Download Solution Manual for Managerial Accounting Creating Value in a Dynamic Business Environment and more Exams Managerial Economics in PDF only on Docsity!
SOLUTION MANUAL FOR MANAGERIAL ACCOUNTING: CREATING VALUE
IN A DYNAMIC BUSINESS ENVIRONMENT, 12TH EDITION, RONALD
HILTON, DAVID
CHAPTER 1
The Crucial Role of Managerial Accounting in a Dynamic
Business Environment
FOCUS ON ETHICS (Located before the Chapter Summary in the text.)
The focus-on-ethics inset for Chapter 1 is the IMA Statement of Ethical Professional Practice. Instructors can use this list of ethical principles and standards to lead a class discussion. The discussion can also range to consideration of how these standards may have been violated by accountants and managers involved in the various ethical scandals uncovered over the past several years. It is also useful to discuss the pros and cons of the procedures that IMA suggests for its members when they believe they know about ethical lapses in their organizations.
ANSWERS TO REVIEW QUESTIONS
1 - 1 The explosion in e-commerce will affect managers in significant ways. One effect will be a drastic reduction in paper work. Millions of transactions between businesses are now being conducted electronically with no hard-copy documentation. Along with this method of communicating for business transactions comes the very significant issue of information security. Businesses need to find ways to protect confidential information in their own computers, in cloud computing data centers, and while moving across the internet, while at the same time sharing the information necessary to complete transactions. Another effect of e-commerce is the dramatically increased speed with which business transactions can be conducted. In addition, there will be dramatic changes in the way managerial accounting procedures are carried out, one example being cloud-based budgeting, which is the enterprise-wide and electronic completion of a company’s budgeting process using cloud-based software and data storage.
1 - 4 Examples of the four primary management activities in the context of a national fast- food chain are as follows: (a) Decision making: Choosing among several possible locations for a new fast-food outlet. (b) Planning: Developing a cost budget for the food and paper products to be used during the next quarter in a particular fast-food restaurant. (c) Directing operations: Developing detailed schedules for personnel for the next month to provide counter service in a particular fast-food restaurant. (d) Controlling: Comparing the actual cost of paper products used during a particular month in a restaurant with the anticipated cost of paper products for that same time period. 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 participating as part of the management team in the decision making and planning processes: Managerial accountants provide estimates of the cost of adding a flight on the route from Dallas to Miami and actively participate in making the decision about adding the flight. (b) Assisting managers in directing and controlling operations: Managerial accountants provide information about the actual costs of flying the company’s Asian routes during a particular month. (c) Motivating managers and other employees toward the organization's goals: A budget is provided for the cost of handling baggage at Chicago O'Hare Airport. The budget is given to the airline's baggage handling manager, who is expected to strive to achieve the budget. (d) Measuring the performance of activities, subunits, managers, and other employees within the organization: Quarterly income statements are prepared for each of the airline's major geographical sectors, and these income reports are used to evaluate the earnings performance of each sector during the relevant time period. (e) Assessing the organization's competitive position and working with other managers to ensure the organization's long-run competitiveness in its industry: Information about industry-wide performance standards is obtained and compared with the airline's own performance. For example, how does the airline stack up against its competitors in ticket prices, on-time departures, mishandled baggage, customer complaints, and safety?
1 - 6 Four important differences between managerial accounting and financial accounting are listed below: (a) Managerial-accounting information is provided to managers within the organization, whereas financial-accounting information is provided to interested parties outside the organization. (b) Managerial-accounting reports are not required and are unregulated, whereas financial-accounting reports are required and must conform to generally accepted accounting principles. (c) The primary source of data for managerial-accounting information is the organization's basic accounting system, plus various other sources. These sources include such data as rates of defective products manufactured, physical quantities of material and labor used in production, occupancy rates in hotels and hospitals, and average takeoff delays in airlines. The primary source of data for financial- accounting information is almost exclusively the organization's basic accounting system, which accumulates financial information. (d) Managerial-accounting reports often focus on subunits within the organization, such as departments, divisions, geographical regions, or product lines. These reports are based on a combination of historical data, estimates, and projections of future events. Financial-accounting reports focus on the enterprise in its entirety. These reports are based almost exclusively on historical transaction data.
Learning and growth: Dollars of research grants obtained, and publication of journal articles and books by faculty. 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 work is being done, rather than being sequestered off by themselves as was the tendency some years ago. Managerial accountants are increasingly deployed as key members of management teams. 1 - 12 Managerial-accounting information often brings to the attention of managers important issues that need their managerial experience and skills. In many cases, managerial- accounting information will not answer the question or solve the problem, but rather make management aware that the issue or problem exists. In this sense, managerial accounting sometimes is said to serve an attention-directing role. 1 - 13 Both manufacturing and service industry firms are engaged in production. The primary difference between these types of companies is that manufacturing firms produce inventoriable goods, whereas the services produced by service industry firms are not inventoriable. Services, such as air transportation or hotel service, are consumed as they are produced. 1 - 14 (a) Practical capacity is an organization’s upper limit on production of goods or services , calculated after taking into account normal occurrences such as equipment downtime, employee fatigue, illness, and breaks, and planned interruptions in production such as holidays and shutdowns. (b) Cost of resources supplied is a measure of the spending on production resources, such as labor, machinery, and various overhead costs, that have been made available for in support of the production planned during a particular period of time. (c) Cost of resources used is a consumption-oriented measure that attempts to quantify the spending on the production resources used to create the actual amount of product or service output. It considers only the amount of resources provided that were actually needed for production. (d) Cost of resources unused is the difference between cost of resources supplied and cost of resources used , i.e., the cost of the various production resources that were available for production but not needed for the amount of output actually produced. Often referred to as cost of excess capacity. 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 only one pizza is ordered, she still has to be paid for four hours. There is no way to store that capacity to use it another time. However, if an experienced store manager, realizing it is going to be a slow night, tells her after an hour to “go home and we’ll schedule you for
three extra hours later in the week ,” then the capacity is never s upplied, and therefore it does not go unu sed and is not “lost forever.” 1 - 16 CMA stands for Certified Management Accountant. This title is the professional certification for managerial accountants administered by the Institute of Management Accountants. The requirements for becoming a CMA include fulfilling specified educational requirements, obtaining relevant experience, and successfully passing the CMA examination. 1 - 17 (a) Competence: Ongoing development of knowledge and skills, performance of duties in accordance with relevant laws, adherence to regulations and technical standards, and preparation of complete and clear reports for management. (b) Confidentiality: Refraining from disclosing confidential information, except when legally required, and from using confidential information for unethical or illegal advantage (personal or professional). (c) Integrity: Contribute to a positive ethical culture by mitigating conflicts of interest, avoiding activity or conduct that would prejudice carrying out duties ethically or discredit the profession, and placing the integrity of the profession above personal interests. (d) Credibility: Communication of information fairly, objectively, and fully, including delays or deficiencies, as well as professional limitations or constraints that would preclude responsible judgment or successful performance. 1 - 18 Non-value-added costs are the costs of activities in the value chain that can be eliminated with no deterioration of product quality, performance, or perceived value. 1 - 19 As a quick glance at the internet will make clear, Disney’s ESPN both produces and broadcasts a variety of sporting events via several cable channels. There are many ways in which big data and data analytics are important to ESPN, and answers could include (but are not limited to) such uses as: analyzing viewer demographics by region of the country to choose which football games to broadcast; studying viewer behavior patterns to help sell advertising time more effectively; and analyzing employee performance across several dimensions to determine the characteristics of the most effective employees. A successful answer must specify the insight that such an analysis would provide for the benefit of the company. 1 - 20 Managerial accounting is just as important in nonprofit organizations as it is in profit- seeking enterprises. Managers in nonprofit organizations also need managerial- accounting information for decision making, planning, directing, and controlling operations. While the organization’s goal is not profit, it still has important goals relating to its mission that its managers need to achieve with support from managerial accounting tools and perspectives. A common saying is, “No money, no mission!”
1 - 22 According to Miriam-Webster, a professional is a person who conforms to the technical or ethical standards of a profession. And the Oxford English Dictionary describes a professional as some one who is “competent, skillful, or assured.” According to these definitions, a managerial accountant would be a professional if she conducted herself according to the IMA’s principle and standards of ethical professional practice. 1 - 23 Some activities in the value chain of a manufacturer of cotton shirts are as follows: (a) Growing and harvesting cotton (b) Transporting raw materials (c) Designing shirts (d) Weaving cotton material (e) Manufacturing shirts (f ) Transporting shirts to retailers (g) Advertising cotton shirts Some activities in the value chain of an airline are as follows: (a) Making reservations and ticketing (b) Designing the route network (c) Scheduling (d) Purchasing aircraft (e) Maintaining aircraft (f) Running airport operations, including handling baggage (g) Flying passengers and cargo 1 - 24 Strategic cost management is the process of understanding and managing, to the organization's advantage, the cost relationships among the activities in an organization's value chain.
SOLUTIONS TO EXERCISES
EXERCISE 1-25 (20 MINUTES)
- Estimates of any operating costs associated with the proposed luxury cars would be relevant. For example, estimates of the cost of gasoline, routine maintenance, and insurance on the new vehicles would be useful.
- Data about the cost of maintaining the machine weekly or biweekly would be relevant. In addition, the production manager should consider information about the likely rates of defective products under each maintenance alternative.
- Estimates of the cost of lost merchandise due to shoplifting and the cost of employing security personnel would be relevant to this decision.
- Estimates of building costs for the library addition as well as estimates of benefits to the population from having the addition would be useful. Estimating the benefits may require value judgments about the benefits to the public from having additional library space and more books. EXERCISE 1-26 (25 MINUTES)
- Developing a bonus reward system for managerial personnel is an example of motivating managers and other employees toward the organization's goals. To be effective, the bonus system must provide incentives for managers to work toward achieving those goals.
- Comparing actual and planned costs is consistent with two objectives of managerial accounting activity: (1) assisting managers in controlling operations, and (2) measuring the performance of activities, subunits, managers, and other employees within the organization.
- Determining manufacturing costs is related to all of the objectives of managerial accounting. It is especially closely related to the objective of providing information for decision making and planning.
- Measuring inventory costs is most closely associated with the first two objectives of managerial accounting activity: (1) providing information for decision making and planning, and (2) assisting managers in directing and controlling operational activities. Since inventory costs are used in external financial reports, they are also relevant to measuring the performance of managers and subunits within the organization.
- Estimating costs is particularly relevant to the objective of providing information for decision making and planning.
SOLUTIONS TO PROBLEMS
PROBLEM 1- 29 (25 MINUTES)
- Managerial accounting can be of significant benefit when it comes to solving the company’s prob lems. Managerial accounting is defined as the process of identifying, measuring, analyzing, interpreting, and communicating information in pursuit of an organization’s goals. Several of the problems lie in this area and may be attributed to a lack of formal planning, controlling, directing, and decision-making expertise. For example, bulging inventories and the fact that growth “…has occurred in spite of what we’ve done” may indicate the absence of a formal planning system— one that involves developing a detailed financial and operational description of anticipated activities. Dangerously low cash balances and the need for short-term loans may be eliminated by the use of a cash budget, which depicts cash inflows and outflows over a period of time. The addition of ski equipment may or may not have been the proper decision. Did Nelson correctly identify all possible alternatives and then make the proper selection? The canoe-building activities and white-water rafting trips may be losing money. Are costs skyrocketing hopelessly out of control? It is difficult to tell because the income statement does not provide adequate information — it is a summary of past transactions for the entire business. A performance report that identifies the company’s major areas of activity would be of assistance, especially if the report measured budgeted vs. actual costs and highlighted (directed attention toward) significant deviations for management attention. If such a report were prepared, managers could better direct operational activities and ensure that the company achieves its goals (i.e., the control function).
- 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, bulging inventories, which impact profitability and cash balances, may be the result of poor ordering practices and/or ineffective marketing programs. Issues related to the operation of a seasonal business may be overcome with the selection of different “off - season” product lines and aggressive marketing campaigns. These problems, coupled with the fact that a number of the key executives manage in “silos” and lack the “big - picture” outlook for the firm, seem to indicate the desirability of teams that ha ve different employee backgrounds and interests (such as marketing, operations, and finance) represented.
PROBLEM 1-29 (CONTINUED)
- Nelson’s business is operating in the tourism industry, which is notoriously cyclical. In that context alone, there are many constrained resources: for example, number of rafts for raft trips and employees to guide them. In the busiest season, the summer months of July and August, Nelson can probably keep a large number of rafts and 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 he is fortunate that these are resources that can be scaled to meet demand: some rafts can be put in storage and every rafting guide knows that his employment is seasonal. Still, resource capacity has to be considered in managing the company. What about other resources that are not so easily adjusted? The buildings, for example. They are a resource to the company and many of their costs (depreciation, for instance) continue year round. Does that mean that a t-shirt sold in winter should be viewed as less profitable (or marked up more) than a t-shirt sold in summer, because there are fewer t-shirts sold to cover the cost of the building? Managerial accounting says no, that the extra cost of the building in winter is unused capacity and shouldn’t count against the cost of the t-shirt. There are many other resources that could be listed. For each, you should describe what causes the capacity issue.
- Data analytics is an attempt, via data governance and data science, to rigorously analyze the operations of a company and the broader context it operates in. It is an empirical, evidence- based approach to understanding a company’s operations and as such is indeed the opposite of “gut feeling.” This does not mean that the intuition (aka gut feeling) of experienced managers is without value. However, data analytics can provide greater confidence about their intuition and often can sometimes find patterns and relationships that even the most experience manager would miss or misinterpret. Nelson’s case is a good illustration of a problem that occurs in many start-ups. Founders can manage “by the seat of their pants” until the company hits a certain size and then their intuition fails. It simply cannot process the “big data.” Data analytics could help Nelson by, for example, showing the characteristics of customers most and least likely to convert to internet sales, allowing him to tailor his communications accordingly and perhaps suggesting how he might succeed with a targeted internet approach without alienating his face-to-face customers.
service to its customers (poor meals; long wait times when calling reservations centers; a large number of lost bags by a small, poorly-trained crew, and so forth). PROBLEM 1- 31 (45 MINUTES)
- Allen's considerations are determined largely by her position as an accountant, with responsibilities to AccuSound Corporation, others in the company, and herself. Allen's job involves collecting, analyzing, and reporting operating information. Although not responsible for product quality, Allen should exercise initiative and good judgment in providing management with information having potentially adverse economic impact. Allen should determine whether the controller's request violates her professional or personal standards or the company's code of ethics, should the company have such a code. As Allen decides how to proceed, she should protect proprietary information and should not violate the chain of command by discussing this matter with the controller's superiors.
- 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 her department, by informing superiors in this matter, and by working with others in the company to find solutions. b. The quality control engineer has responsibilities for product quality and should protect overall company interests by continuing to study the quality of reworked rejects, by informing the plant manager and his staff in this matter, and by working with others in the company to find solutions. c. The plant manager and his or her staff have responsibilities for product quality and cost and should protect overall company interests by exercising the stewardship expected of them. Plant management should be sure that products meet quality standards. Absentee owners need information from management, and the plant management staff have a responsibility to inform the board of directors elected by the owners of any problems that could affect the well-being of the firm.
- 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. Allen must take some action to reduce her vulnerability. One possible action would be to obey the controller and prepare the advance material for the board without mentioning or highlighting the probable failure of reworks. Because this approach differs from the long-standing practice of highlighting information with potentially adverse economic impact, Allen should write a report to the controller detailing the probable failure of reworks, the analysis made by her and the quality control engineer, and the controller's instructions in this matter.
SOLUTION TO CASE
CASE 1- 33 (40 minutes)
- Andrea Nolan’s ethical responsibilities require that she not tell her friend, Rob Borman, about Progressive’s cash flow problems. Nolan, as a management accountant, must comply with the following standards for ethical conduct that apply here: Confidentiality: Keep information confidential except when disclosure is authorized or legally required. Inform all relevant parties regarding appropriate use of confidential information. Monitor to ensure compliance. Refrain from using confidential information for unethical or illegal advantage. Integrity: Mitigate actual conflicts of interest. Regularly communicate with business associates to avoid apparent conflicts of interest. Advise all parties of any potential conflicts of interest. Refrain from engaging in any conduct that would prejudice carrying out duties ethically. Abstain from engaging in or supporting any activity that might discredit the profession. Contribute to a positive ethical culture and place integrity of the profession above personal interests.
- Nolan has an ethical responsibility to inform Progressive that Borman has decided to postpone the paper order. As a management accountant, Nolan must comply with the following standards of ethical conduct that apply here: Confidentiality: Keep information confidential except when disclosure is authorized or legally required. Inform all relevant parties regarding appropriate use of confidential information. Monitor to ensure compliance. Refrain from using confidential information for unethical or illegal advantage.
CASE 1-33 (CONTINUED)
Integrity: Mitigate actual conflicts of interest. Regularly communicate with business associates to avoid apparent conflicts of interest. Advise all parties of any potential conflicts of interest. Refrain from engaging in any conduct that would prejudice carrying out duties ethically. Abstain from engaging in or supporting any activity that might discredit the profession. Contribute to a positive ethical culture and place integrity of the profession above personal interests. Credibility: Communicate information fairly and objectively. Provide all relevant information that could reasonably be expected to influence an intended user’s understanding of the reports, analyses, or recommendations. Report any delays or deficiencies in information, timeliness, processing, or internal controls in conformance with organization policy and/or applicable law. Communicate professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity.
- Nolan should follow the established policies for resolution of ethical conflict at Progressive, if any are available. If consistent with the policies, or if no policies are available, Nolan could try to resolve this matter by discussing the situation with her immediate supervisor. She could tell her supervisor about her long-time friendship with Borman. If a satisfactory resolution to the problem is not achieved, Nolan could submit the matter to the next-higher managerial level. (IMA Statement of Ethical Professional Practice , “Resolving Ethical Issues”) She should also make it clear that she has not and will not disclose confidential company information to Borman or any other outside party except when authorized or legally obligated to do so. (IMA Statement of Ethical Professional Practice , “II. Confidentiality,” #1)