MANAGEMENT ACCOUNTING (VOLUME I) - Solutions Manual

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.
. Non-value-added costs are the costs of activities that can be eliminated
with no deterioration of product quality, performance, or perceived value.
!. Managers rely on many information systems in addition to managerial-
accounting information. "xamples of other information systems include
economic analysis and forecasting, marketing research, legal research and
analysis, and technical information provided by engineers and production
specialists.
#. $ecoming the low-cost producer in an industry requires a clear
understanding by management of the costs incurred in its production
process. %eports and analysis of these costs are a primary function of
managerial accounting.
&. 'ome activities in the value chain of a manufacturer of cotton shirts are as
follows(
)a* +rowing and harvesting cotton
)b* ,ransporting raw materials
)c* -esigning shirts
)d* .eaving cotton material
)e* Manufacturing shirts
)f* ,ransporting shirts to retailers
)g* /dvertising cotton shirts
'ome activities in the value chain of an airline are as follows(
)a* Making reservations and ticketing
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Chapter 2 Management Accounting and the Business Environment
)b* -esigning the route network
)c* 'cheduling
)d* 0urchasing aircraft
)e* Maintaining aircraft
)f* %unning airport operations, including handling baggage
)g* 'erving food and beverages in flight
)h* 1lying passengers and cargo
2. Strategic cost management is the process of understanding and managing,
to the organi3ation4s advantage, the cost relationships among the activities
in an organi3ation4s value chain.
5. If customers who provide a company with the most profits are attracted,
satisfied, and retained, profits will increase as a result.
6. / value chain is a sequence of business functions whose ob7ective is to
provide a product to a customer or provide an intermediate good or
service in a larger value chain. ,hese business functions include %8-,
design, production, marketing, distribution, and customer service.
/n organi3ation can become more effective by focusing on whether each
link in the chain adds value from the customer4s perspective and furthers
the organi3ation4s ob7ectives.
9. :ost( ;rgani3ations are under continuous pressure to reduce the
cost of the products or services they sell to their customers.
<uality( :ustomers are expecting higher levels of quality and are less
tolerant of low quality than in the past.
,ime( ,ime has many components( the time taken to develop and
bring new products to market= the speed at which an
organi3ation responds to customer requests= and the reliability
with which promised delivery dates are met. ;rgani3ations
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( ,here is now heightened recognition that a continuing flow of
innovative products or services is a prerequisite for the
ongoing success of most organi3ations.
1>. Managers make planning decisions and control decisions. 0lanning
decisions include deciding on organi3ation goals, predicting results under
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Management Accounting and the Business Environment Chapter 2
various alternative ways of achieving those goals, and then deciding how
to attain the desired goals. :ontrol decisions include taking actions to
implement the planning decisions and deciding on performance evaluation
and feedback that will help future decision making.
11. 1our themes for managers to attain success are customer focus, value-
chain and supply-chain analysis, key success factors, and continuous
improvement and benchmarking.
1. :ompanies add value through %8-= 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.
1!. ,his phrase means that people will direct their attention to work primarily
on those tasks that management monitors and measures. "mployees may
not pay as much attention )or no attention* to tasks that are not measured.
;ften management will reward people based on how well they perform
relative to a specific measure. /s an example, in a manufacturing
organi3ation, 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. / negative
consequence is that the quality of output may suffer.
1#. 'ome of these new measures are quality, speed to market, cycle time,
flexibility, complexity and productivity.
1&. :ustomer satisfaction is often thought to be a qualitative measure of
performance as one cannot directly observe ?satisfaction.@ Aowever,
using attitude surveys and psychological measurements, customer
satisfaction can be measured in quantitative terms. 1or instance, people
who design surveys often employ attitude scales that ask questions in
which customers respond on a 1 to & scale. ,hese values can be summed
and averaged to determine satisfaction scores.
12.
Stakeholders Contribution Requirements
"mployees "ffort, skills,
information
%ewards, interesting
7obs, economic
security, proper
treatment
0artners +oods, services, 1inancial rewards
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Chapter 2 Management Accounting and the Business Environment
information commensurate with the
risk taken
;wners :apital 1inancial rewards
:ommunity /llows the
organi3ation to operate
and does not oppose
its operation
:onformance to laws,
good corporate
citi3enship and,
perhaps, leadership
15. :ompetitive benchmarking is an organi3ation4s search for, and
implementation of, the best way to do something as practiced in other
organi3ations.
:ontinuous improvement is the relentless search to )1* document,
understand, and improve the activities that the organi3ation undertakes to
meet its customers4 requirement, )* eliminate processing activities that do
not add product features that customers value, and )!* improve the
performance of activities that increase customer value or satisfaction.
16. / value-added activity is an activity that, if eliminated, would reduce the
product4s service to the customer in the long run.
/n activity that cannot be classified as value-added is a nonvalue-added
activity(
a. Balue-added
b. Convalue-added
c. Convalue-added
d. Balue-added
e. Convalue-added
f. Convalue-added
g. Balue-added
h. Balue-added
i. Convalue-added
7. Balue-added
19. Dust-in-time means making a good or service only when the customer,
internal or external, requires it. Dust-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. Dust-in-
time production is based on the elimination of all nonvalue-added
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Management Accounting and the Business Environment Chapter 2
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
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