A management accounting information sys-tem is an information syssys-tem that produces outputs using inputs and processes needed to satisfy specific managerial objectives.. The three
Trang 1CHAPTER 1 INTRODUCTION: THE ROLE, HISTORY, AND
DIRECTION OF MANAGEMENT ACCOUNTING
QUESTIONS FOR WRITING AND DISCUSSION
1 A management accounting information
sys-tem is an information syssys-tem that produces
outputs using inputs and processes needed
to satisfy specific managerial objectives
2 The inputs of a management accounting
information system are economic events
The processes transform the inputs into
out-puts and are such things as collecting,
mea-suring, storing, analyzing, reporting, and
managing Typical outputs include special
reports, product costs, customer costs,
per-formance reports, budgets, and personal
communication
3 The three objectives of a management
ac-counting information system are as follows:
To provide information for costing out
ser-vices, products, and other objects of interest
to management; to provide information for
planning, controlling, evaluation, and
conti-nuous improvement; and to provide
informa-tion for decision making
4 All organizations—manufacturing,
mer-chandising, and services—must have a
good management accounting information
system Management accounting concepts
and procedures are not restricted to any one
type of organization
5 The users of management accounting
in-formation are managers and workers within
the organization Anyone internal to an
or-ganization is a potential user of
manage-ment accounting information
6 Management accounting information is used
to cost out objects (for example, services
and products) and to aid in planning,
control-ling, evaluation, continuous improvement,
and decision making
7 Both financial and nonfinancial information
should be provided by the management
ac-counting information system Nonfinancial
information provides insights useful for
con-trolling operations—it is easily used by
op-erational workers Financial information is
critical for evaluating the success of
opera-8 Continuous improvement means searching
for ways of increasing overall efficiency and productivity of activities by reducing waste, increasing quality, and reducing costs
9 Employee empowerment is allowing
opera-tional workers to plan, control, and make decisions without explicit authorization from middle- and higher-level managers
10 Operational workers must be informed so
that they can evaluate and monitor the effec-tiveness of their decisions
11 Planning establishes performance
stan-dards, feedback compares actual perfor-mance with planned perforperfor-mance, and con-trolling uses feedback to evaluate deviations from plans
12 Performance reports are formal reports that
compare actual data with planned data or benchmarks and thus provide signals to managers that allow them to take corrective actions
13 Management accounting differs from
finan-cial accounting in the following major ways: (1) internally focused, (2) no mandated rules, (3) financial and nonfinancial; subjec-tive information possible, (4) emphasis on the future, (5) internal evaluation and deci-sions based on very detailed information, (6) broad, multidisciplinary
14 The requirement to prepare reports for
ex-ternal users created a demand for a particu-lar accounting information system This sys-tem was geared to produce inventory costs Aggregate average cost information appar-ently was sufficient for most internal deci-sions Thus, management accounting be-came an extension of the financial accounting system This outcome was prob-ably due to a favorable cost-benefit tradeoff The incremental cost of producing
Trang 2more accurate product costs was not offset
by the incremental benefits of improved
de-cision making However, significant changes
in the competitive environment have
in-creased the cost of making bad decisions,
thus increasing the benefits of more
accu-rate information Also, information
technolo-gy has decreased the cost of processing
da-ta These two events have led to a demand
for an improved management accounting
in-formation system
15 Activity-based management is an important
approach that focuses management’s
atten-tion on activities with the objective of
improv-ing the value received by the customer and
the profit achieved by providing this value It
is important because it is the heart of the
contemporary management accounting
sys-tem, offering increased accuracy in product
costing (through the use of activity-based
costing) and the ability to evaluate and
con-trol activities (through process value
analy-sis)
16 Customer value is the difference between
customer realization (what a customer
rece-ives) and customer sacrifice (what a
cus-tomer gives up) Focusing on cuscus-tomer
val-ue forces managers to consider the entire
set of value-chain activities, including what
happens after a product is sold This creates
a demand for a broader set of information
than that found in a traditional system
17 The internal value chain is the set of
activi-ties required to design, develop, produce,
market, distribute, and service a product (the
product can be a service) To increase
cus-tomer value, managers must assess the
ef-fect each activity in the chain has on
cus-tomer value, keeping those that add value
and eliminating those that do not
18 Industrial value chain is the linked set of
value-creating activities from raw materials
through the end-use customer
Understand-ing the industrial value chain is important
because it enables a manager to identify the
important internal and external linkages and
use these linkages to create a competitive
advantage
19 Supply chain management is concerned
with managing material flows starting with
suppliers and upstream suppliers, moving to
production, and finishing with the distribution
of finished goods to customers and
down-stream customers Supply chain manage-ment focuses on the entire industrial value chain because potential benefits may be reaped by understanding upstream suppliers and downstream customers
20 E-business is any business transaction or
information exchange that is executed using information and communication technology Management accountants provide informa-tion for e-business settings, e.g., the cost of processing an electronic transaction versus the cost of a paper transaction
21 Managing the value chain requires a
cross-functional perspective Because of the inter-relationships that exist in the value chain, a decision can affect many different functions Information must be gathered and reported
so that these effects can be assessed and decision making improved
22 Decreasing the time required to perform
activities may increase quality and decrease costs The management accounting system should be able to document the relationship between time reductions and such things as quality and cost both on a projected or before-the-fact basis and on an after-the-fact basis This enhances planning, controlling, and decision making
23 A line position has direct responsibility for
carrying out the basic missions of an organi-zation A staff position has indirect responsi-bility for the basic missions and provides a supportive role for line activities
24 Yes For most organizations, the controller
should be a member of the top management staff The controller is the financial expert of
an organization and can provide critical ad-vice and insights
25 The controller is responsible for both internal
and external accounting These responsibili-ties usually include diverse activiresponsibili-ties such as taxes, SEC reports, cost accounting, bud-geting, internal auditing, financial account-ing, and systems accounting
26 Ethical behavior is concerned with making
right choices and usually involves sacrificing individual self-interest for the well-being of others It is possible to teach ethical beha-vior in virtually any course By being intro-duced to ethical dilemmas in management accounting, students can be made aware of
Trang 3the behavior that is expected in the business
world and, in particular, for management
ac-countants
27 Yes There is some evidence that ethical
behavior actually is good business In other
words, the market and consumers
appciate ethical behavior and are willing to
re-ward those who adopt it In addition, a
com-pany with higher ethical standards would
experience less exposure to manipulation of
financial data for gain
28 Yes As management accountants become
more informed about what behavior is
ac-ceptable and what is not, we should expect
a favorable response This response can be
reinforced by the IMA imposing sanctions for
serious violations of the code
29 The three forms of certification are the CMA,
the CPA, and the CIA Although each
certifi-cation can be valuable for management
ac-countants, the CMA is tailored to fit their
needs The CPA has a public-accounting orientation, and the CIA has an internal-auditing orientation Only the CMA specifi-cally addresses the professional require-ments of a management accountant
30 The Sarbanes-Oxley Act (SOX) established
stronger government control and regulation
of publicly-traded companies in the United States Major sections of SOX include: es-tablishment of the Public Company Account-ing Oversight Board, enhanced auditor in-dependence, tightened regulation of corporate governance, control over man-agement, and management/auditor assess-ment of the firm’s internal controls SOX also requires public companies to state whether
or not the top corporate officers are bound to the company code of ethics
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EXERCISES
1–1
1 Inputs: a, d, f, j
2 Processes: b, g, m
3 Outputs: c, i, l
4 System objectives: e, h, k, n
1–2
a Management
b Financial
c Management
d Financial
e Financial
f Management
g Management
h Management
i Financial
j Management
k Management
l Financial
m Financial
n Management
1–3
1 b
2 c
3 f
1–4
1 e
2 b
3 c
1–5
1 k
2 g
3 a
4 f
5 i
6 h
7 j
8 c
9 b
10 e
11 d
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Penny is staff She is in a support role—she prepares reports and helps explain and interpret them Her role is to help the line managers more effectively carry out their responsibilities
Karol is line She is responsible for selling product A basic objective for the exis-tence of a manufacturing firm is to sell product Karol has direct responsibility for
a basic objective and therefore holds a line position
Porter is staff He is in a support role to production He does not make the prod-ucts himself Instead, he ensures that the appropriate production equipment is in place for manufacturing
Joe is a line manager He has direct responsibility for producing a garden hose Clearly, one of the basic objectives for the existence of a manufacturing firm is to make a product Thus, Joe has direct responsibility for a basic objective and therefore holds a line position
1–7
A manager has a responsibility to the company as well as society If he/she lays off the employees, he/she ignores both of these responsibilities In effect, the manager would be pursuing his/her self-interest at the expense of the company and the salespeople While pursuit of self-interest is not necessarily unethical, it can be if it harms others In this case, the manager’s action could result in lower profits for the company because sales may decrease and unnecessary training costs will be incurred when the positions are refilled the following year Similarly,
it is unjust to penalize productive employees simply to earn a bonus The right choice is to retain the three salespeople Although the manager is not a manage-ment accountant, he/she is violating the ethical standard that requires the refusal
of “any gift or favor (bonus) that would influence or appear to influence their ac-tions.”
The reward system, in part, encouraged this behavior Apparently, the manager is paid a bonus if profits exceed 10 percent of planned profits By basing reward on
a short-run measure such as profits, the manager has the incentive to manipulate earnings in the short run One way of manipulating annual earnings is to reduce discretionary expenditures
This type of behavior can be discouraged by expanding the performance mea-sures to include long-run factors like market share, productivity, and personnel development The accounting system can also be used to track trends (e.g., training costs over time) Moreover, managers can be required
to provide extensive justification for significant changes in discretionary expenses
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a By the time most students graduate from high school, they have not had much exposure to business Therefore, they do not have full knowledge
of acceptable behavior for the business environment Students may not know that certain practices are unethical because they may not be famil-iar with the behavioral norms associated with these practices Once students begin to learn business practices, they begin to see what ethi-cal dilemmas can arise in a business context They then are able to ap-ply the moral training they have had to deal with the situations
Fur-thermore, evidence exists that ethical reasoning can be changed for the better Thus, instruction in ethics can be a vital part of a student’s edu-cation
b Sacrificing self-interest is a choice that each person must make Others may
be influenced by those individuals who behave ethically Individuals commit-ted to ethical behavior produce societies commitcommit-ted to ethical behavior (not vice versa)
c While this sounds noble, many would disagree that managers are first seek-ing to serve others and accept personal financial rewards as a by-product of a good job Pursuit of self-interest and personal financial well-being is not nec-essarily unethical It is only when this pursuit is done at the expense of the collective good that the behavior becomes questionable
d It is often true that unethical firms and individuals suffer financially In the long run, there is some evidence that ethical behavior pays off It is doubtful, however, that every unethical firm or individual is wiped out financially There are too many notable exceptions (for example, the selling of drugs by orga-nized crime)
1-9
No, it is not ethical for Steve to demand a kickback from Dave Dave should not agree to this This brief situation actually happened to Dave, a friend of the au-thor The author advised Dave not to accept the deal Dave then checked with his lawyer, who bluntly told him the deal was illegal Dave did not accept
1–10
a CPA
b CIA
c CMA
d CPA
e CPA
f CMA
g CMA, CPA, CIA
h CMA, CPA, CIA
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1–11
1 Excellence teams and minicompanies both have the objective of involving production line personnel more fully in the management process so that the company can take advantage of the direct contact and knowledge that operat-ing workers have about production and their work environment This will hopefully translate into continuous improvement of operating performance The objectives seem to be realized Duffy has increased profits and reduced costs, attributing much of the change to the contributions of the excellence teams The same is true for the minicompanies—much of the success in quality improvements appears to be grounded in this organizational change
2 Employee empowerment is a key element of continuous improvement Oper-ating workers have tremendous skills, knowledge, and firsthand contact with the operating environment, all of which can be exploited to discover new and more efficient ways of producing As employees are allowed more input, their self-esteem grows and their commitment to the company increases Morale also increases, making for a more pleasant and productive environment There are potential disadvantages Too much latitude in employee empower-ment might sidetrack employees to the point where they begin to attack per-sonalities; discuss and argue about wage and hour considerations (or other grievances); or try to become involved in hiring, firing, and disciplinary mat-ters Many of these matters are best left centralized, and some skillful man-agement is needed to ensure that operating employees are primarily involved
in improving efficiency
3 Management accounting information should be used to inform empowered employees so that they can identify problems and monitor and evaluate the effects of decisions they make This information will only be valuable if it is delivered on a timely basis
4 Quality culture means that the employees of the organization have an internal commitment to producing high-quality products and services A learning or-ganization means that the employees are always seeking new and better ways
of doing things—they have a commitment to continuous improvement
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A Decision making; Role: Information about the cost of performing the various tests
B Planning and controlling; Role: Feedback about the actual defective rate ver-sus the planned rate
C Planning; Role: Pro forma income statement and cash budget
D Decision making; Role: Projection of future cash flows and analysis of the ef-fects on unit cost and cycle time
E Planning; Role: Providing unit prices and costs so that a cost-volume-profit analysis can be done
F Decision making; Role: Identifying avoidable costs
1–13
1 The total product is the product and its features (processing speed, disk drives, software packages, and so on), the service, the operating and main-tenance requirements, and the delivery speed
2 One company is emphasizing low costs, and the other is attempting to diffe-rentiate its PC by offering faster delivery and higher-quality service
3 The Confiar’s service component and its delivery time appear to be better than Drantex’s Thus, the realization of these features appears to outweigh the additional sacrifice (the additional operating and maintenance cost) asso-ciated with the Confiar PC The implications for management accounting are straightforward The management accounting information system should col-lect and report information about customer realization and sacrifice Much of this information is external to the firm but clearly needed by management
4 Better quality and shorter delivery time increase customer realization, while lowering the price decreases customer sacrifice In total, customer value has increased and presumably this should make the Drantex PC much more com-petitive This example illustrates how quality, time, and costs are essential competitive weapons It also illustrates how critical it is that the management accounting system collect and report data concerning these three dimen-sions
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Planning The management accountant gains an understanding of the impact on the organization of planned transactions (i.e., analyzing strengths and weak-nesses) and economic events, both strategic and tactical, and sets obtainable goals for the organization The development of budgets is an example of plan-ning
Controlling The management accountant ensures the integrity of financial infor-mation, monitors performance against budgets and goals, and provides informa-tion internally for decision making Comparing actual performance against bud-geted performance and taking corrective action where necessary is an example of controlling Internal auditing is another example
Evaluating Performance The management accountant judges and analyzes the implications of various past and expected events and then chooses the optimum course of action The management accountant also translates data and commu-nicates the conclusions Graphical analysis (such as trend, bar charts, or regres-sion) and reports comparing actual costs with budgeted costs are examples of evaluating performance
Ensuring Accountability of Resources The management accountant implements
a reporting system closely aligned to organizational goals that contributes to the measurement of the effective use of resources and safeguarding of assets Internal reporting such as comparison of actual to budget is an example of accountability
External Reporting The management accountant prepares reports in accordance with generally accepted accounting principles and then disseminates this infor-mation to shareholders, creditors, and regulatory and tax agencies An annual re-port or a credit application are examples of external rere-porting (CMA adapted)
1–15
The changes that are being proposed violate the following ethical standards:
Competence Top management’s request of Roger Deerling to account for the company’s information in a manner that is not in accordance with generally ac-cepted accounting principles is in violation of the standard to “perform profes-sional duties in accordance with relevant laws, regulations, and technical stan-dards.”
Trang 101–15 Concluded
Confidentiality Top management has violated the ethical standard to “refrain from using confidential information for unethical or illegal advantage” (personal job security)
Integrity Top management clearly is in violation of the standard “to avoid appar-ent conflicts of interest” and to “advise all parties (other shareholders) of any po-tential conflicts.”
Credibility Top management’s restriction and distortion of Alert’s financial in-formation violates the standard to “communicate inin-formation fairly and objective-ly.”
By telling Deerling to restrict the disclosure of the changes, top management is clearly in violation of the standard to “communicate information fairly and objec-tively.”
To resolve the ethical dilemma, Roger Deerling should first determine if the com-pany has an established policy in place If so, he should follow the prescribed policies in resolving the ethical conflict If there is no policy, then the specific steps are as follows:
• To discuss the issue with his immediate supervisor, unless the supervisor is
involved, in which case, he should continue to the next management level Roger may need to discuss the issue with the Audit Committee of the Board of Directors, or owners Any contact with levels above his immediate supervisor should be initiated with the supervisor’s knowledge, as long as the supervisor is not involved As long as Roger does not believe a law was broken, he should not communicate the problem to outside authorities
• To clarify relevant concepts by confidential discussion with an objective
advi-sor or an IMA Ethics Counselor to obtain possible courses of action
• “Consult (his) own attorney as to legal obligations and rights concerning the
ethical conflict.”
(CMA adapted)