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Solution Manual for Managerial Accounting Creating Value in a Dynamic Business Environment, 12th Edition
Typology: Exams
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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.
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.
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)
CASE 1- 33 (40 minutes)
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.