1-1
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
INTRODUCTION TO MANAGERIAL
ACCOUNTING
DISCUSSION QUESTIONS
1. Managerial accounting provides accounting information for internal users in a firm. Specifically, managerial
accounting identifies, collects, measures, classifies, and reports financial and nonfinancial information that is
useful to internal users in planning, controlling, and decision making. Managerial accounting also has no
mandatory rules, emphasizes the future, and is multidisciplinary.
2. The three broad objectives of managerial accounting are to provide information for planning, controlling, and
decision making.
3. The users of managerial accounting information are generally managers and other employees of a firm.
Managerial accounting information is typically not provided to outsiders but may be in selected cases. For
example, a bank may require budgeting information for the next few years before agreeing to grant a loan.
4. A managerial accounting system typically provides both financial and nonfinancial information. For example,
financial information on cost of production is tracked. Other information, such as the number of warranty
returns, may also be tracked by the management information system.
5. Controlling involves comparing the expected performance with the actual performance to see what
differences, if any, exist.
6. Planning occurs first. Planning requires setting objectives and identifying the means of achieving those
objectives. Then, the results of the plan are compared with the plan, which is called controlling. Clearly, it is
also feedback, in that any impediments or unexpected occurrences are noted. This feedback is then used to
develop the plan for the next period.
7. Managerial accounting is internally focused, does not follow mandatory rules, keeps track of both financial
and nonfinancial information, emphasizes the future, and relies on a broad range of disciplines. Financial
accounting, on the other hand, is externally focused, follows externally imposed rules (such as GAAP), has a
historical orientation, and provides information about the company as a whole.
8. Managerial accountants have had to broaden their focus beyond simple financial reporting to include the
gathering of information on all types of costs and of the value of the product or service to customers. These
broader costs are used in planning and decision making.
9. Customer value is the difference between what a customer receives and what the customer gives up when
buying a product or service. The focus on customer value forces management accounting to look at many
types of costs, not simply manufacturing cost. These may include the price of the good or service,
maintenance costs, search costs, learning costs, and disposal costs.
10. The value chain is the set of activities required to design, develop, produce, market, and deliver products
and services to customers. It is important because it helps the company to understand its role in serving
customers and to develop strategic competence.
11. Today’s managerial accountant must understand many functions of the business, from manufacturing to
marketing to distribution to customer service, in order to provide appropriate information for managing the
value chain. Increased international trade means the managerial accountant must be familiar with not only
business practices and laws in his or her own country but also in the countries with which the company
trades.
1
CHAPTER 1 Introduction to Managerial Accounting
1-2
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
12. Enterprise risk management (ERM) refers to the formal process of identifying the factors or threats, both
internal and external to the organization that might prevent the organization from achieving its strategic
objectives. The managerial accountant plays an increasingly important role in ERM by providing financial and
nonfinancial measures of these threats and communicating them to high-level executives (e.g., chief risk
officer, chief financial officer, board of directors) in the organization who manage these factors.
13. Line positions are those that have direct responsibility for the basic objectives of an organization. These
typically include producing and selling a product. Staff positions are supportive in nature (e.g., human
resources, maintenance) and have only indirect responsibility for an organization’s basic objectives.
14. Yes, the controller should be a member of top management. This is because the controller, as the chief
accountant for the firm, has a wealth of information needed by top management in determining the strategic
direction of the firm.
15. Ethical behavior involves choosing actions that are right, proper, and just. Yes, it is possible to teach aspects
of ethical behavior in a managerial accounting classroom. Students need to see examples of right and wrong
behavior in business. These examples help them to recognize ethical dilemmas later on the job.
16. One major theme or executive pressure common to many of the recent accounting scandals is a focus on the
short term, rather than the long term. For example, WorldCom wrongly decided to increase current period net
income by inappropriately decreasing current period expenses (by recording more of the expenditures as an
asset that would be expensed in small amounts each period rather than all at once in the current period).
Often, the high-level executives that perpetrate such financial fraud are rewarded by incentives that
overweight current period net income performance relative to long-term net income performance. Another
major theme common to many of the accounting and banking frauds is a lack of sufficient transparency, or
clarity, in the types and timing of the information that is reported to parties outside of the organization. Some
business experts also would argue that a third common theme underlying many of these scandals was the
lack of sufficient oversight (i.e., watchdog mentality) by the perpetrating organization’s auditors, board of
directors, or both.
17. The three forms of certification discussed are the Certified Management Accountant, the Certified Public
Accountant, and the Certified Internal Auditor. While all three are appropriate to the accountant within the
company, only the CMA exam is interdisciplinary and covers the broad range of subjects faced by the
managerial accountant.
CHAPTER 1 Introduction to Managerial Accounting
1-3
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
MULTIPLE-CHOICE QUESTIONS
1-1. c
1-2. b
1-3. a
1-4. b
1-5. e
1-6. e
1-7. d
1-8. b
1-9. e
1-10. d
CHAPTER 1 Introduction to Managerial Accounting
1-4
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
EXERCISES
E 1-11
a. Decision making
b. Controlling
c. Planning
d. Decision making
e. Planning
f. Decision making
E 1-12
a. Managerial accounting oriented
b. Financial accounting oriented
c. Managerial accounting oriented
d. Financial accounting oriented
e. Managerial accounting oriented
E 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 maintenance
requirements, and the delivery speed.
2. One company is emphasizing low costs, and the other is attempting to differentiate
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) associated with the
Confiar PC. The implications for management accounting are straightforward. The
management accounting information system should collect 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 the value of what the customer
receives, while lowering the price decreases the amount paid. In total, customer
value has increased, and presumably, this should make the Drantex PC much more
competitive. This example illustrates how quality, time, and costs are essential
competitive weapons. It also illustrates how critical it is for the management
accounting system to collect and report data concerning these three dimensions.
CHAPTER 1 Introduction to Managerial Accounting
1-5
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
E 1-14
Joan Dennison 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.
Steven Swasey 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, Steven has direct responsibility for a basic objective and holds a
line position.
E 1-15
No, it is not ethical for Steve to demand a kickback from Dave. Dave should not agree
to this unethical proposal. This brief situation actually happened to Dave, a friend of
one of the authors. 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. In
addition to rejecting Steve’s unethical offer, Dave might consider reporting the
unethical offer to relevant key stakeholders, such as Steve’s superiors in the
university’s Athletic Department, university’s Office of the Provost, or president.
Hopefully, university administrators would be interested in learning of one (or more)
of its employees damaging the integrity of its bidding process with key business
partners such as Dave’s printing shop. If Dave were a management accountant, he
should consider the IMA’s Statement of Ethical Professional Practice and what it says
about avoiding and reporting such unethical behavior (e.g., see the first standard under
Integrity and the second under Credibility).
E 1-16
A manager has a responsibility to the company as well as society. If the manager
lays off the employees, he or she ignores both of these responsibilities. In effect, the
manager would be pursuing 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. In ethical terms, the manager is not behaving with integrity.
The reward system, in part, encouraged this behavior. Apparently, the manager is paid a
bonus if profits exceed 10% of planned profits. By basing rewards on a measure such
as short-run profits, the company has given the manager an incentive to manipulate
earnings in the short run. One way of manipulating annual earnings is to reduce or
defer discretionary expenditures.
This type of behavior can be discouraged by proper matching of expenses with
revenues and by expanding the performance measures to include long-run factors
like market share, productivity, and personnel development. The accounting system
CHAPTER 1 Introduction to Managerial Accounting
1-6
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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.
E 1-17
1. 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 familiar with the behavioral norms
associated with these practices. Once students begin to learn business practices,
they begin to see what ethical dilemmas can arise in a business context. Then they
are able to apply the moral training they have had to deal with the situations.
Furthermore, evidence exists that ethical reasoning can be changed for the better.
Thus, instruction in ethics can be a vital part of a student’s education.
2. Sacrificing self-interest is a choice that each person must make. Others may be
influenced by those individuals who behave ethically. Individuals committed to
ethical behavior produce societies committed to ethical behavior.
3. While this sounds noble, many would disagree that managers are first seeking 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 necessarily unethical.
It is only when this pursuit is done at the expense of the collective good that the
behavior becomes questionable.
4. It is often true that unethical firms and individuals suffer financially. In the long run,
some evidence suggests that ethical behavior does pay. It is doubtful, however,
that every unethical firm or individual is wiped out financially. Too many notable
exceptions to this statement exist (e.g., the selling of drugs by organized crime).
E 1-18
The employees should not follow the suggestion of their boss to purchase more
shares in anticipation of a buyout. This is insider trading and is illegal. Insider trading
is prohibited by many corporate codes of ethics. Even when it is not explicitly
prohibited by the corporate code of ethics, it is still wrong and illegal.
E 1-19
Answers will vary.
What Students Are Saying About Us
.......... Customer ID: 12*** | Rating: ⭐⭐⭐⭐⭐"Honestly, I was afraid to send my paper to you, but splendidwritings.com proved they are a trustworthy service. My essay was done in less than a day, and I received a brilliant piece. I didn’t even believe it was my essay at first 🙂 Great job, thank you!"
.......... Customer ID: 14***| Rating: ⭐⭐⭐⭐⭐
"The company has some nice prices and good content. I ordered a term paper here and got a very good one. I'll keep ordering from this website."
