Solution manual cost and managerial accounting by barfield 3rd introduction to cost and management accounting

It provides information on product/service cost that is used on the balance sheet and income statement.. Managerial accounting focuses on the information needs of an organization’s inter

Chapter 1 Introduction to Cost and Management Accounting in a

Global Business EnvironmentQuestions

1 Financial accounting focuses on the needs of external users

(stockholders, creditors, etc.) and is dedicated to processinginformation about historical, monetary transactions Cost accounting is a subset of both financial and managerial

accounting It provides information on product/service cost that is used on the balance sheet and income statement

Managerial accounting focuses on the information needs of an organization’s internal managers, needs that are related to the planning, controlling, and decision-making functions of those managers

None of these accounting areas is more “important” than the other; each simply provides different information for different needs Thus, the determination of “importance” lies with the user and the user’s purposes

2 Management accounting stresses the informational needs of

internal users over those of external users (the focus of financial accounting) Because of this perspective, managementaccounting provides information in a format that is flexible and relevant to a particular manager's usage Financial

accounting, on the other hand, must provide some uniformity inthe manner in which information is presented for it to be comparable among companies

3 Cost accounting is a subset of management accounting Cost

accounting focuses on the determination of product or service cost Management accounting includes the provision of all internal accounting information to managers to help them

perform their functions of planning, controlling, evaluating performance, and making decisions Some information generated

by cost accounting is used in management accounting and some

1

2

4 Operating in a global environment means that more decision and

control variables must be tracked For example, a firm

operating in many countries must track variables such as

national rules of income taxation, sets of local laws of

commerce, production and sourcing sites, and currencies In addition, the multinational firm must monitor markets in many countries, deal with a multitude of local cultures and

customs, and communicate in several languages

Some other valuable information for the global firm wouldbe: currency exchange rates; national inflation rates; details

of import/export laws; prices for commodities in likely

sourcing sites; distribution costs for various modes of movinggoods, components, equipment, and materials; political issues

in all relevant markets; and competitors’ prices in all

markets These types of information are important to managers

in safeguarding the firm’s assets and in allocating the firm’sresources to generate an optimal return on capital

5 This statement is false Even small companies now have

opportunities to arrange partnering with companies in other countries These opportunities have become available, in part,because of the reduction in tariffs among countries, the

ability to travel and communicate easily among countries, and the use of the Internet for business purposes

6 Student answers will vary No solution provided

7 The sites listed under WebTrust (see also

http://www.aicpa.org)have been examined by a licensed CPA or chartered accountant According to the principles of the

WebTrust program, these sites are periodically examined by a WebTrust licensed CPA to ensure compliance with the WebTrust principles, which include:

 Business practices disclosure

 Transaction integrity

 Information protection

The VeriSign Secure Server ID installed at these sites allows consumers to perform electronic transactions securely All information sent to these sites will be electronically

encrypted, to help ensure that nobody but the intended

recipient can read your credit card number or other sensitive personal information It also provides assurance that you are doing business with a site that can legitimately display the WebTrust Seal

The WebTrust Site Index includes the following sites:

 Alpine Bank

 Altus Mortgage Corporation

 The American Institute of Certified Public Accountants

 Bell Canada

 Canada.etrade.com

 Colegio de Contadores Públicos Autorizados de Puerto Rico

 Colorado Society of CPAs

 Competitor Communications Inc

 E-Trade Group, Inc

 Flexlease V.O.F

 Fortune1000.ca

 GalaxiWorld Casino

 Innovation.pbnet.com

 Les Systemes Fortune 1000 ltee

 Main Net, Inc

 National Tax Institute

 Pennsylvania Institute for Certified Public Accountants

 Portera.com

 Resource Marketing, Inc

 Shop-csc.com

 The Ohio Society of CPAs

 VERSUS Technologies, Inc

 Webcoach Internet Services

 Zurich Financial Services Australia Limited

8 Economic trade agreements are essential to the globalization

of business In the past, trade barriers (whether tariffs or import/export limitations) kept countries separate and more focused only on opportunities within their own geographic boundaries Trade agreements reduce the fiscal and physical barriers and, thus, provide companies with greater

opportunities for sales and/or production and provide

individuals with greater opportunities to compare

product/service quality, price, and delivery so as to make more rational decisions

9 Student answers will vary No solution provided

10 Student answers will vary No solution provided

11 An American (or Canadian) company operating in a long-time

capitalist country might find “capitalist” conditions in

Russia to be different There is still a distinct involvement

of the political system in the business arena in Russia; for example, in the need to obtain permits, etc Culturally, the Russian people have traditionally worked, not for themselves, but for the state; this might create an organizational culturethat delivers less than the normal American/Canadian work ethic Alternatively, the newly created opportunities for capitalism and personal wealth could induce the Russian people

to work harder than their American/Canadian counterparts who have always operated under these conditions

12 Each student will have different answers No solution

provided

13 Each student will have different answers No solution

provided

14 In general, government regulations exist to protect the people

and the environment and to provide a climate for fair businesscompetition Typically, regulations exist that prescribe

practices with respect to labor, product safety, appropriate conduct in foreign business transactions, and fair trade Students from different countries should be asked to compare their answers and perceptions

15 There are many self-serving reasons to be a nonpolluter For

example, a proactive strategy to reduce pollution may attract environmentally conscious consumers Further, such an approachmay avoid subsequent regulation of operations by government

and the legal entanglements caused by retroactive application

of new laws

16 A legal standard is codified, compliance is mandatory, and

violations of it may invoke sanctions Because legal standardsgenerally vary by legal jurisdictions, no common set of globallaws exists for personal or business conduct An ethical

standard is inherently personal, is transportable across legaljurisdictions, and may be a basis for consistent personal conduct in global transactions It represents a moral view of what is acceptable and unacceptable in personal behavior

Legal and ethical standards are similar in that legal standards generally represent the common element in a

society’s moral view of behaviors On the other hand, legal standards apply to all members of a specified society, and sanctions exist for violations Ethical standards are

nonbinding, may differ between individuals, and no explicit sanctions are imposed for violations of ethical standards

17 Each student will have different answers No solution

provided

18 Factors that impede the development of an international code

of ethics for profit-oriented businesses include differing political climates, standards of living, the ability to move from and into alternative societal classes, inflation rates that may destroy currency valuations, and (possibly most

importantly) the ability to punish violators of the code The Caux Principles are an attempt to establish an international code of ethics; whether it can succeed will be determined in the future

Each student will have different answers for these questions as well as whether they believe that laws will be

able to overcome ethical differences (Note: Laws are for a

populace; ethics are for a person–no law will ever MAKE an unethical person ethical!)

19 An organizational code of ethics is essential so that each

member of the organization understands his/her moral

obligations to other members A code of ethics will help frameorganizational culture—if organizational members at all levelstruly believe in and abide by it and if there are penalties that are enforced for code violations

20 Each student will have different answers No solution

provided

21 A mission statement is important to an organization because it

provides a clearly worded view of what the organization wants

to accomplish and how the organization uniquely meets its targeted customers’ needs with products and services Without

a mission statement, an organization may veer away from its

“view of itself” and find that it is engaging in activities that are not, and can never be, part of what it wants to do

22 Each student will have different answers No solution

provided

23 Organizational strategy is the link between a firm’s goals and

objectives and its operational plans Strategy is therefore aspecification of how a firm intends to compete and survive Each organization will have a unique strategy because it has unique goals, objectives, opportunities, and constraints

24 Because of the fiduciary nature of not-for-profit

organizations, it is essential that strategic planning be performed to ensure longevity and fiscal responsibility Thus,

it is probably more important (at least legally) for profit, than for-profit, entities

not-for-25 Goals are qualitative expressions of desired results

Objectives are quantifiable expressions of desired results With respect to this course, your goal may be to demonstrate basic competency in the field of cost and management

accounting Consistent with this goal, your objective may be

to achieve a minimum grade of B

26 Authority is the right, generally because of position or rank,

to use resources to accomplish a task or achieve an objective.Responsibility is the obligation to accomplish a task or

achieve an objective Authority can be delegated, but

responsibility must be assumed and maintained by the person towhom it is assigned However, sufficient authority must

accompany responsibility or the assignment of responsibility cannot endure

27 Pure centralization is appropriate in very small firms that

lack a pool of talented managers to make decisions In such a setting, decisions are best made by experienced decision

makers who possess the “vision” of the organization’s future

Pure decentralization is appropriate in an organization that has diverse global, cultural, and political operations aswell as in firms that face very competitive local markets thatare sensitive to local information Because they are in the best position to have all information required to identify andevaluate the decision alternatives, local managers make most decisions under pure decentralization

28 Each student will have different answers No solution

provided

29 Although student responses will vary, most will address

curriculum design, faculty evaluations, faculty appointments and dismissals, tuition, resource allocations for students fees, and so forth

30 Core competencies are the special proficiencies possessed and

valued by an organization If a particular strategy requires core competencies that are not possessed by a firm, executing such a strategy would be very difficult For example, a

strategy of diversification would be impossible to execute in

a firm that did not possess core competencies in mergers, acquisitions, and investment analysis

31 This statement is false All firms have capital constraints,

although the constraints are more binding for some firms than others For any firm, as the amount of capital raised througheither stock or bond offerings increases, the perceived

riskiness of the offerings also rises The perceived risk rises because there is greater uncertainty associated with thenew investment relative to the firm’s existing investments

As the perceived risk rises, the rate of return required by investors rises At some point, the return required by the investors will exceed the return that the firm can generate with the new funds

32 Human, structural, and relationship capital are elements of a

firm’s intellectual capital Human capital reflects the

knowledge and creativity of an organization’s people, serves

as the source of strategic innovation and renewal, and

provides the foundation for core competencies Structural capital consists of information systems, organizational

structure, and “hard” organizational capabilities (items that can be owned and exchanged) Structural capital allows human capital to be utilized Relationship capital reflects ongoing interactions between the organization and its customers and suppliers

Students will have differing answers to the second part

of this question, but some observations follow:

 To a start-up software development company, human capital isabsolutely essential But without structural capital

software ideas cannot be tested and debugged

 To a car dealership, structural capital is probably more important because it allows the dealership to determine where a specific automobile is, when it can be obtained, and

how financing can be arranged (Note: Cars can now be

purchased from the Internet without interacting with other humans.)

 A university may find human capital more important Considerthat the University of Phoenix operates with little

structural capital but takes advantage of the skills of manyhumans in course design, development, and presentation

 In a hospital, human capital may be more important because machines are not currently available that can do surgery or comfort patients However, a hospital that lacks significantstructural capital in today’s world is probably not a place

to which someone wants to go

 At Coca-Cola, structural capital may be more important

because of the need for product consistency throughout the world Although new products are important, Coke’s primary products (Coca-Cola Classic, Diet Coke, and Sprite) are possibly world-class enough to ensure the organization’s longevity

In all cases, however, the customer element of relationship capital is the most valuable part of an organization’s

intellectual capital Without customers to purchase products and services, an organization would have no need to employ human or structural capital

33 A change in laws or regulations may remove a constraint to

competition or to a particular strategy For example, the cost

of labor has traditionally been much cheaper in Mexico than elsewhere in North America However, tariffs and taxes have historically constrained the extent to which North American businesses could exploit that labor cost advantage With the implementation of NAFTA, these costs have been dramatically reduced Consequently, more North American businesses are moving labor-intensive operations to Mexico

34 A company may choose to avoid competition through compression

of competitive scope (focusing on a specific market segment tothe exclusion of others), differentiation (adding enough

market value to charge a higher price), and cost leadership (becoming the low-cost producer and, thus, low-price seller)

The benefits of compressing scope allow for limited advertising and a more complete understanding of the

organization’s customers The latter lets the organization focus on delivering new products that are designed to appeal

to the specific customer base

Differentiation is beneficial because the additional value allows the firm to charge a higher price and, hopefully,make a greater return than nondifferentiated companies

Cost leadership is beneficial because, at least until competitors benchmark the organization to learn its cost

“secrets,” the organization should be able to increase volume and generate higher profits These organizations commonly takefull advantage of the economies of scale

35 A business intelligence system needs substantial information

about competitors because such information is crucial to

strategic and tactical planning Without knowing who its

competitors are, what they are doing, and how they are

pricing, an organization cannot take initiatives to compete effectively or efficiently

36 The three generic missions are build, hold, and harvest The

build mission is to acquire market share and establish a

position for future profitability The hold mission is to holdexisting market share or existing profitability The harvest mission is to generate cash and profits for the organization that can be used to fund the growth areas of the firm

The generic mission, and product life cycle may be highlycorrelated For example, if divisions are established along product lines, each division’s mission can be defined relative

to the product line Divisions with product lines that

represent the company’s future are likely to have build

missions Similarly, divisions with product lines that

represent a large portion of current profits and cash inflows are likely to have hold or harvest missions

37 Strategic resource management (SRM) involves the

organizational planning for deployment of organizational

resources to create value for customers and shareholders Key variables in the success of SRM are the management of

information and the management of change in responding to threats and opportunities These areas of concern cannot be measured by financial accounting because they are often

concerned with nonmonetary information and measurements Thus,managerial accounting is used to provide the necessary

estimates and information for management to focus on strategicobjectives

38 The value chain of an organization is the set of processes

that convert inputs into products and services for the firm’s customers The value chain includes both internal and supplierprocesses, and it creates the foundation of strategic resourcemanagement, which involves the deployment of organizational resources The linkage between SRM and the value chain is thatoptimizing value is the objective of SRM Thus, value chain effects are the concern of managers in the strategic

deployment of organizational resources

b 6 g 5

41 a The bank would want information about the firm’s ability

to repay the loan Potentially, the loan could be repaid from either of two sources: (1) by liquidating an asset that is not crucial to business operations or (2) from future operating cash flows Useful information for the bank would allow the loan officer to evaluate the

probability that the firm could repay the loan from either of these sources Consequently, the most useful items of information would be a balance sheet, income statement, statement of cash flows, and perhaps a cash budget The balance sheet provides information about the types of assets owned by the firm and the cash

commitments for debt repayments and payments to suppliers The income statement is useful for assessing profitability and projecting future cash flows The statement of cash flows and the cash budget provide information about the sources and uses of cash

Information about accounts receivable turnover, or the average time to collect accounts receivable, can be determined by examining the history of accounts

receivable collections Collectibility of accounts receivable can be assessed by determining the extent to which the accounts receivable are past due

A trend for supplier price increases can be assessed by examining purchases over time Prices of specific,

routine inputs can be obtained from supplier invoices andpurchase order data

Qualitative information that would interest the bank might include the borrower’s character, his or her history in handling borrowed funds, management skills in the firm, stability of business conditions, work backlog, financial strength of large-volume customers, and supplierwillingness to provide favorable credit terms on

purchases

b An example of accumulating the information to address

customers’ complaints regarding delays in completing autorepair jobs can be found on the customer order documents.The customer order document should be designed to capturethe promised time of completion of the job and also to capture the actual completion time The time variances can be accumulated systematically on a log or,

alternatively, can be determined by inspection of the customer order documents In this way, these documents, that comprise part of the accounting system, can be used

to track such nonfinancial data

Price changes are usually justified by management onthe basis of one or more of the following: (1) Competitorprice changes; (2) Willingness by customers to pay higherprices on the basis of quality or other types of

differentiation of products or services; (3) Governmentalregulations or requirements; and (4) Changes in the

prices of material, labor, or other elements of production such as utilities, taxes and insurance

Information regarding the first three justifications mustusually be obtained from sources outside the accounting system However, changes of prices and therefore costs

of the factors of production described in justification (4) can be found from accounting records and documents

For example, examining purchases over time can assess a trend for supplier price increases Prices of specific, routine inputs can be obtained from supplier invoices and purchase order data A trend for labor costs can be obtained by examining labor costs by comparing personnel and payroll records for mechanics andsupport workers over time Examining and comparing

invoices and tax reports can obtain a trend for utilities, insurance and taxes over time

c Most of the data can be gathered directly from the

accounting records or from the documents that support theaccounting records such as original-transactions

documents (invoices, shipping records, etc.) However, none of the qualitative data would be obtainable from theaccounting records This type of information would

require the bank to query others such as character references, suppliers, and customers

42 a Translating and reviewing the translation would be the

largest costs associated with the additional information.(Cost of the additional pages would be nominal.)

EDS competes globally in providing financial information services using a differentiation strategy through the use of technology that produces innovative unique solutions demonstrably superior to, and different from, its competition Given this strategy and the fact that a large percentage of company sales in 2000 were in non-U.S markets, the benefits derived from such

translations were probably substantial The translations indicated the high degree of importance that the company places on its international focus and business

opportunities By making the management letter more readable by foreign investors, there could be increased investment interest

b Each student will have a different answer but may

indicate a need for the company’s mission statement, future international acquisition or diversification plans, product development and introduction plans, utilization of international suppliers within the company’s value chain, and expected changes in the worldwide market for financial information services

43 See www.netgrocer.com and www.peapod.com

a One problem with on-line ordering is time; this can be

solved by eliminating pictures of goods and providing different ways to sort items (by brand, price, etc.) Another problem is limited selection; this can be solved

by asking customers and using market data to determine which goods should be stocked Another problem is

substitutions; this can be solved by deleting items from the site that are not available or having a secondary supplier provide items that are out of stock

b Two delivery problems are that the customer must be home

and the goods must arrive quickly These can both be solved by using an overnight delivery service, so the customer can sign for goods to be left in a specific location Alternatively, you can provide delivery by courier service, assuming no traffic problems

44 Each student will have a different answer but may address

technology infrastructures, regulatory and tax environments, use of the euro as a currency, niche markets, creditworthiness