Solution manual cost accounting 12e by horngren ch 01

1-1 Management accounting measures and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization.. It measures and recor

CHAPTER 1 THE ACCOUNTANT’S ROLE IN THE ORGANIZATION

See the front matter of this Solutions Manual for suggestions regarding your choices of assignment material for each chapter

1-1 Management accounting measures and reports financial and nonfinancial information

that helps managers make decisions to fulfill the goals of an organization It focuses on internal reporting

Financial accounting focuses on reporting to external parties It measures and records

business transactions and provides financial statements that are based on generally accepted accounting principles (GAAP)

Other differences include (1) management accounting emphasizes the future, (2) management accounting influences the behavior of managers and other employees, and (3) management accounting is not restricted by Generally Accepted Accounting Principles

1-2 Financial accounting is constrained by generally accepted accounting principles Management accounting is not restricted to these principles The result is that

management accounting allows managers to charge interest on owners’ capital to help judge a division’s performance, even though such a charge is not allowed under GAAP,

management accounting can include assets or liabilities (such as ―brand names‖ developed internally) not recognized under GAAP, and

management accounting can use asset or liability measurement rules (such as present values or resale prices) not permitted under GAAP

1-3 Management accountants can help to formulate strategy by providing information about the sources of competitive advantage—for example, the cost, productivity, or efficiency advantage of their company relative to competitors or the premium prices a company can charge relative to the costs of adding features that make its products or services distinctive

1-4 The business functions in the value chain are

Research and development—generating and experimenting with ideas related to new

products, services, or processes

Design of products, services, and processes—the detailed planning and engineering

of products, services, or processes

Production—acquiring, coordinating, and assembling resources to produce a product

or deliver a service

Marketing—promoting and selling products or services to customers or prospective

customers

Distribution—delivering products or services to customers

Customer service—providing after-sale support to customers

1-5 Supply chain describes the flow of goods, services, and information from the initial

sources of materials and services to the delivery of products to consumers, regardless of whether those activities occur in the same organization or in other organizations

Cost management is most effective when it integrates and coordinates activities across all companies in the supply chain as well as across each business function in an individual company’s value chain Attempts are made to restructure all cost areas to be more cost-effective

1-6 ―Management accounting deals only with costs.‖ This statement is misleading at best,

and wrong at worst Management accounting measures, analyzes, and reports financial and

non-financial information that helps managers define the organization’s goals, and make decisions to

fulfill them Management accounting also analyzes revenues from products and customers in order to assess product and customer profitability Therefore, while management accounting does use cost information, it is only a part of the organization’s information recorded and analyzed by management accountants

1-7 Management accountants can help improve quality and achieve timely product deliveries

by recording and reporting an organization’s current quality and timeliness levels and by analyzing and evaluating the costs and benefits—both financial and non-financial—of new quality initiatives such as TQM, relieving bottleneck constraints or providing faster customer service

1-8 Planning decisions focus on (a) selecting organization goals, predicting results under

various alternative ways of achieving those goals, deciding how to attain the desired goals, and (b) communicating the goals and how to attain them to the entire organization

Control decisions focus on (a) taking actions that implement the planning decisions, and

(b) deciding how to evaluate performance and what related feedback to provide that will help future decision making

1-9 The three roles are

Problem solving—comparative analysis for decision making

Scorekeeping—accumulating data and reporting results to management describing

how the organization is doing and how well it is implementing its strategies

Attention directing—helping managers to focus on opportunities and problems

1-10 The three guidelines for management accountants are

1 Employ a cost-benefit approach

2 Recognize behavioral and technical considerations

3 Apply the ―different costs for different purposes‖ notion

1-11 Agree A successful management accountant requires general business skills (such as

1-12 The new controller could reply in one or more of the following ways:

(a) Demonstrate to the plant manager how he or she could make better decisions if the plant controller was viewed as a resource rather than a deadweight In a related way, the plant controller could show how the plant manager’s time and resources could be saved by viewing the new plant controller as a team member

(b) Demonstrate to the plant manager a good knowledge of the technical aspects of the plant This approach may involve doing background reading It certainly will involve spending much time on the plant floor speaking to plant personnel

(c) Show the plant manager examples of the new plant controller’s past successes in working with line managers in other plants Examples could include

assistance in preparing the budget,

assistance in analyzing problem situations and evaluating financial and nonfinancial aspects of different alternatives, and

assistance in submitting capital budget requests

(d) Seek assistance from the corporate controller to highlight to the plant manager the importance of many tasks undertaken by the new plant controller This approach is a last resort but may be necessary in some cases

1-13 IMA stands for the Institute of Management Accountants It is the largest association of management accountants in the United States The CMA (Certified Management Accountant) is the professional designation for management accountants and financial executives It demonstrates that the holder has met the admission criteria and demonstrated the competency of technical knowledge required by the IMA

1-14 The Institute of Management Accountants (IMA) sets standards of ethical conduct for management accountants in the following areas:

Competence

Confidentiality

Integrity

Objectivity

1-15 Steps to take when established written policies provide insufficient guidance are

(a) Discuss the problem with the immediate superior (except when it appears that the superior is involved)

(b) Clarify relevant ethical issues by confidential discussion with an objective advisor (c) Consult your own attorney as to legal obligations and rights concerning the ethical conflicts

If (a), (b), (c) and other avenues do not resolve the situation, resignation from the organization should be considered

1-16 (15 min.) Value chain and classification of costs, computer company

Cost Item Value Chain Business Function

a

b

c

d

e

f

g

h

Production Distribution Design Research and Development Customer Service or Marketing Design (or Research and Development) Marketing

Production

1-17 (15 min.) Value chain and classification of costs, pharmaceutical company

Cost Item Value Chain Business Function

a

b

c

d

e

f

g

h

Design Marketing Customer Service Research and Development Marketing

Production Marketing Distribution

1-18 (25 min.) Management accounting system and its customers

1 Management accounting’s customers are managers of departments such as marketing, production and R&D Management accounting focuses on providing financial and nonfinancial information to the managers to help them make better decisions to achieve the organization’s goals

2 The value of a management accounting system can be enhanced and, simultaneously, expectations of managers can be exceeded by providing relevant and timely information to the managers so that they achieve their strategic goals and make good planning and control decisions This means that management accounting must have customer focus The information needs of the managers for decision making must be met and exceeded in order to retain them as users of management accounting information Management accounting systems should address the information needs of the managers by helping with problem solving, scorekeeping, and directing their attention to the following key success factors:

Cost control

High quality

Timely response to customer demand

Innovation

Management accountants have several tools that can help managers concentrate on continuous improvement of various aspects of their operations

Value chain and supply chain analysis performed by the management accounting function can contribute to the achievement of key success factors When each business function adds value and all business functions are coordinated and well integrated, it contributes to cost control, high quality, timely response, and innovation

1-19 (15 min.) Value chain, supply chain, and key success factors

Change in

a

b

c

d

e

Value-chain analysis Key success factors (cost and quality) Key success factors (cost)

Supply-chain analysis Key success factors (time)

1-20 (15 min.) Planning and control decisions

1 a Planning—Barnes & Noble (B&N)’s cash needs for the future

b Control—B&N’s annual financial performance evaluation

2 a Planning—whether to increase or decrease local marketing support

b Control—whether recent sales promotion led to an increase in revenues

3 a Planning—whether or not to expand B&N’s internet-based lines of business

b Control—evaluation by VP of New Business Development of the performance of managers of individual lines of business

4 a Planning—which books to advertise more or which books to include in a special

chat-room site

b Control—decision by publisher to pay additional bonuses to each author whose book reaches the bestseller list and stays on the list for a certain period of time

5 a Planning—decision by B&N on the amount and type of insurance to purchase next year

b Control—follow up by B&N with the insurance company regarding a cash payment to B&N

1-21 (15 min.) Problem solving, scorekeeping, and attention directing

Because the accountant’s duties are often not sharply defined, some of these answers might be challenged:

a Scorekeeping

b Attention directing

c Problem solving

d Attention directing

e Problem solving

f Scorekeeping (and then attention directing)

g Problem solving

h Scorekeeping (depending on the extent of the report) or attention directing

i Problem solving

j Problem solving

1-22 (15 min.) Problem solving, scorekeeping, and attention directing

The accountant’s duties are often not sharply defined, so some of these answers might be challenged:

1 Attention directing

2 Problem solving

3 Scorekeeping

4 Scorekeeping

5 Scorekeeping

6 Attention directing

7 Problem solving

8 Scorekeeping

9 Problem solving

10 Attention directing

1-23 (10–15 min.) Professional ethics and reporting division performance

1 Miller’s ethical responsibilities are well summarized in the IMA’s ―Standards of Ethical Conduct for Management Accountants‖ (Exhibit 1-7 of text) Areas of ethical responsibility include the following:

competence

confidentiality

integrity

objectivity

The ethical standards related to Miller’s current dilemma are integrity, competence and objectivity Using the integrity standard, Miller should communicate unfavorable as well as favorable information and professional judgments or opinions Competence demands that Miller perform her professional duties in accordance with relevant laws, regulations, and technical standards Objectivity requires that Miller report information fairly and objectively Miller should refuse to book the $200,000 of sales until the goods are shipped Both financial accounting and management accounting principles maintain that sales are not complete until the title is transferred to the buyer

2 Miller should refuse to follow Maloney's orders If Maloney persists, the incident should

be reported to the corporate controller Support for line management should be wholehearted, but

it should not require unethical conduct

1-24 (15 min.) Planning and control decisions, Internet company

1 Planning decisions

a Decision to raise monthly subscription fee

c Decision to upgrade content of online services (later decision to inform subscribers and upgrade online services is an implementation part of control)

e Decision to decrease monthly subscription fee

Control decisions

b Decision to inform existing subscribers about the rate of increase—an implementation part of control decisions

d Dismissal of VP of Marketing—performance evaluation and feedback aspect of control decisions

2 Other planning decisions that may be made at WebNews.com: decision to raise or lower advertising fees; decision to charge a fee from on-line retailers when customers click-through from WebNews.com to the retailers’ websites

Other control decisions that may be made at WebNews.com: evaluating how customers like the new format for the weather information, working with an outside vendor to redesign the website, and evaluating whether the waiting time for customers to access the website has been reduced

1-25 (30 min.) Problem solving, scorekeeping, attention directing, and feedback,

Internet company (continuation of 1-24)

1 (a) and (e) Decisions to change subscription fee

Problem solving—report outlining expected revenues from subscribers and advertising

with different monthly fee amounts

Scorekeeping—report with monthly subscribers and their revenues in prior months Attention directing—report showing the change in the number of subscribers of Internet

companies at the time they change their monthly fees

(b) Decision to inform existing subscribers of $24.95 fee from July onwards

Problem solving—report analyzing different ways (e-mail, regular mail) of informing

subscribers

Scorekeeping—report indicating how many subscribers have been contacted

Attention directing—report showing how many subscribers have cancelled their

subscriptions following notification of the increase in fees

(c) Decision to upgrade content of online services and to offer better Internet mail services

Problem solving—report outlining expected revenues from subscribers and advertisers as

a result of upgrading service

Scorekeeping—report with monthly subscribers and revenues before and after upgrading

service

Attention directing—report showing the change in the number of subscribers of Internet

companies after they upgraded service

(d) Decision to dismiss vice president of marketing

Problem solving—report indicating alternative reasons for the slowdown in subscribers

from July to September 2006

Attention directing—report analyzing growth in subscribers at competing Internet

companies compared to WebNews.com

Scorekeeping—report showing the number of subscribers after the Vice President of

Marketing was dismissed

2 As a result of the feedback from the control system, WebNews.com made the following

decisions:

a Decision in October to change subscription fee from $24.95 per month in September

2006 to $21.95 in November 2006

b Dismissal of Vice President of Marketing after significant slowing of subscriber growth in accounts and revenues

3 WebNews.com overestimated the number of subscribers for the July to September 2006

period It might examine the methodology it uses to estimate the sensitivity of

1-26 (15 min.) Management accounting guidelines

1 Cost-benefit approach

2 Behavioral and technical considerations

3 Different costs for different purposes

4 Cost-benefit approach

5 Behavioral and technical considerations

6 Cost-benefit approach

7 Behavioral and technical considerations

8 Different costs for different purposes

9 Behavioral and technical considerations

1-27 (15 min.) Role of controller, role of chief financial officer

1

Strategic review of different lines of businesses X

Assessing profitability of various products X

Evaluating the costs and benefits of a new product design X

2 As CFO, Perez will be interacting much more with the senior management of the company, the board of directors, and the external financial community Any experience he can get with these aspects will help him in his new role as CFO George Perez can be better positioned for his new role as CFO by participating in strategy discussions with senior management, by preparing the external investor communications and press releases under the guidance of the current CFO, by attending courses that focus on the interaction and negotiations between the various business functions and, either formally or on the job, getting training in issues related to investments and corporate finance