Solution manual managerial accounting by cabrera 2010 chapter 02 answer

Non-value-added costs are the costs of activities that can be eliminated with no deterioration of product quality, performance, or perceived value.. Some activities in the value chain of

CHAPTER 2

MANAGEMENT ACCOUNTING AND THE BUSINESS ENVIRONMENT

I Questions

1 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

2 Non-value-added costs are the costs of activities that can be eliminated

with no deterioration of product quality, performance, or perceived value

3 Managers rely on many information systems in addition to managerial-accounting information Examples of other information systems include economic analysis and forecasting, marketing research, legal research and analysis, and technical information provided by engineers and production specialists

4 Becoming the low-cost producer in an industry requires a clear understanding by management of the costs incurred in its production process Reports and analysis of these costs are a primary function of managerial accounting

5 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) Serving food and beverages in flight

(h) Flying passengers and cargo

6 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

7 If customers who provide a company with the most profits are attracted, satisfied, and retained, profits will increase as a result

8 A value chain is a sequence of business functions whose objective is to provide a product to a customer or provide an intermediate good or service in a larger value chain These business functions include R&D, design, production, marketing, distribution, and customer service

An organization can become more effective by focusing on whether each link in the chain adds value from the customer’s perspective and furthers the organization’s objectives

9 Cost: Organizations are under continuous pressure to reduce the

cost of the products or services they sell to their customers Quality: Customers are expecting higher levels of quality and are

less tolerant of low quality than in the past

Time: Time has many components: the time taken to develop and

bring new products to market; the speed at which an organization responds to customer requests; and the reliability with which promised delivery dates are met Organizations are under pressure to complete activities faster and to meet promised delivery dates more reliably than in the past in order to increase customer satisfaction Innovation: There is now heightened recognition that a continuing flow

of innovative products or services is a prerequisite for the ongoing success of most organizations

10 Managers make planning decisions and control decisions Planning decisions include deciding on organization goals, predicting results under various alternative ways of achieving those goals, and then deciding how to attain the desired goals Control decisions include taking actions to implement the planning decisions and deciding on performance evaluation and feedback that will help future decision making

11 Four themes for managers to attain success are customer focus, value-chain and supply-value-chain analysis, key success factors, and continuous improvement and benchmarking

12 Companies add value through R&D; design of products, services, or processes; production; marketing; distribution; and customer service Managers in all business functions of the value chain are customers of management accounting information

13 This phrase means that people will direct their attention to work primarily on those tasks that management monitors and measures Employees may not pay as much attention (or no attention) to tasks that are not measured Often management will reward people based on how well they perform relative to a specific measure As an example,

in a manufacturing organization, if people are measured and rewarded based on the number of outputs per hour, regardless of quality, employees will focus their attention on producing as many units of output as possible A negative consequence is that the quality of output may suffer

14 Some of these new measures are quality, speed to market, cycle time, flexibility, complexity and productivity

15 Customer satisfaction is often thought to be a qualitative measure of performance as one cannot directly observe “satisfaction.” However, using attitude surveys and psychological measurements, customer satisfaction can be measured in quantitative terms For instance, people who design surveys often employ attitude scales that ask questions in which customers respond on a 1 to 5 scale These values can be summed and averaged to determine satisfaction scores

16

Stakeholders Contribution Requirements

information jobs, economic

security, proper treatment Partners Goods, services,

information Financial rewards commensurate with

the risk taken

organization to operate and does not oppose its operation

Conformance to laws, good corporate citizenship and, perhaps, leadership

17 Competitive benchmarking is an organization’s search for, and implementation of, the best way to do something as practiced in other organizations

Continuous improvement is the relentless search to (1) document, understand, and improve the activities that the organization undertakes

to meet its customers’ requirement, (2) eliminate processing activities that do not add product features that customers value, and (3) improve the performance of activities that increase customer value or satisfaction

18 A value-added activity is an activity that, if eliminated, would reduce the product’s service to the customer in the long run

An activity that cannot be classified as value-added is a nonvalue-added activity:

a Value-added

b Nonvalue-added

c Nonvalue-added

d Value-added

e Nonvalue-added

f Nonvalue-added

g Value-added

h Value-added

i Nonvalue-added

j Value-added

19 Just-in-time means making a good or service only when the customer, internal or external, requires it Just-in-time requires a product layout with a continuous flow (no delays) once production starts It means that setup costs must be reduced substantially to eliminate the need to produce in batches, and it means that processing systems must be reliable Just-in-time production is based on the elimination of all nonvalue-added activities to reduce cost and time It is an approach to improvement that is continuous and involves employee empowerment and involvement

II Multiple Choice Questions