Professional Documents
Culture Documents
CH 01
CH 01
R
Role in the
1 Organization
1
Sell quality products or services at recorded in the management
low prices. An example is accounting system.
Southwest Airlines.
Sell relatively unique products or 7. Management accountants
services at higher prices than perform three important roles:
charged by competitors. An problem solving, scorekeeping,
example is Ralph Lauren. and attention directing. Problem
solving uses comparative analysis for
Choosing between these strategies is decision making. Scorekeeping entails
among the most important decisions accumulating data and reporting
that managers make. The term results—to all levels of management—
strategic cost management is often describing how the organization is
used to describe cost management doing. Attention directing helps
that specifically focuses on strategic managers focus on opportunities and
issues. problems. Often these roles are
simultaneously performed due to the
5. Management accounting ongoing interaction among strategic
facilitates planning and control. decisions, planning decisions, and
Planning comprises (a) selecting control decisions.
organization goals, predicting results
under various alternative ways of 8. The value chain refers to the
achieving those goals, deciding how to sequence of six business functions in
attain the desired goals, and (b) which usefulness (value to the
communicating the goals and how to customer) is added to the products or
attain them to the entire organization. services of a company. These business
Control comprises (a) taking actions functions are research and
that implement the planning development (R&D); design of
decisions, and (b) deciding how to products, services, or processes;
evaluate performance and what production; marketing;
feedback to provide that will help distribution; and customer
future decision making. Control in one service. Managers in each of these
accounting period is linked to planning business functions of the value chain
for the next period by means of are customers of management
feedback. Managers use feedback to accounting information. Rather than
examine past performance (the control proceeding sequentially through the
function) and systematically explore value chain, companies can realize
alternative ways of making better significant gains when various parts of
informed decisions and plans in the the value chain work together. For
future (the planning function). example, additional spending on R&D
and product design might be more
6. Budgeting is essential for than offset by lower costs of
planning and control. A budget is the production and customer service.
quantitative expression of a proposed
plan of action by management for a 9. The design and operation of
specified period and is an aid to management accounting systems are
coordinating what needs to be done to guided by four themes that are
implement that plan. A key input used important to managers: customer
in developing budgets is past financial focus, key success factors (cost and
and nonfinancial information routinely efficiency, quality, time, innovation),
continuous improvement and
benchmarking, and value-chain and emphasis needs to be on how to
supply-chain analysis. The term help individuals do their jobs
supply chain describes the flow of better.
goods, services, and information from c. Use different costs for different
the initial sources of materials and purposes. To illustrate this
services to the delivery of products to guideline, consider how to account
customers, regardless of whether for advertising. For the purpose of
those activities occur in the same preparing financial statements
organization or in other organizations. under GAAP, advertising is an
Collectively, the four themes direct the expense in the accounting period
company toward attracting and when it is incurred. For the purpose
retaining profitable customers who are of determining a product’s selling
satisfied. price, its advertising costs, along
with its other costs from all
10.Three important guidelines help business functions of the value
management accountants provide the chain, should be taken into
most value in performing their account.
problem solving, scorekeeping, and
attention-directing roles: 11.Most organizations distinguish
line management from staf
a. Employ the cost-benefit management. Line management is
approach. This approach guides directly responsible for attaining the
decision making: resources should goals of an organization. Staff
be spent if they are expected to management exists to provide advice
better attain company goals in and assistance to line management.
relation to the expected costs of When organizations rely on teams for
those resources. For example, attaining their goals, the traditional
consider budgeting systems as distinction between line and staff
economic goods. The expected management is less clear-cut.
costs of a proposed budgeting
system (such as personnel, 12.The chief financial officer
software, and training) should be (CFO), a staff management function,
compared with its expected is the executive responsible for
benefits, which are the collective overseeing the financial operations of
decisions of managers that will an organization, which typically
better attain the company’s goals. include controllership, treasury, risk
In particular, measurement of the management, taxes, and internal
expected benefits is seldom easy. audit. The controller, also a staff
b. Give full recognition to behavioral management function, is the financial
as well as technical considerations. executive primarily responsible for
A management accounting system both management accounting and
should have two simultaneous financial accounting. In performing the
missions for providing information: problem-solving and attention-
(i) to help managers make wise directing roles, the controller
economic decisions (the technical “controls” by exerting an influence
mission), and (ii) to help motivate that helps managers make better
managers and employees to strive informed decisions.
for the company’s goals (the
behavioral mission). Management
is primarily a human activity; the
3
13.Accountants consistently rank
high in public opinion surveys on the
ethics exhibited by members of
different professions. Professional
accounting organizations such as the
Institute of Management
Accountants (IMA), the largest
association of management
accountants in the United States, play
an important role in promoting high
ethical standards. For example, the
IMA has identified four standards of
ethical conduct for management
accountants: competence,
confidentiality, integrity, and
objectivity. EXHIBIT 1-7, text p. 18,
gives the IMA’s guidance on issues
relating to the four standards, and
EXHIBIT 1-8, text p. 19, gives the
IMA’s guidance on how to resolve
ethical conflict.
Featured Exercise
Exon Tackle Company manufactures a wide range of fishing equipment and supplies
for the retail market. In the current fiscal year, Exon incurred the costs described
below. For each of these costs, indicate the applicable business function of the
value chain by putting the identifying number in the space provided.
_______a. Cost of repairing reels that malfunctioned during the warranty period.
_______b. Cost of hooks used in making fishing lures.
_______c. Salary of a mechanical engineer working on the basic concept for the next
generation of ultra-light fishing rods.
_______d. Cost of overnight delivery of rods and reels to winter boat shows.
_______e. Cost of running advertisements in fishing magazines.
_______f. Cost of printing operating instructions to be packaged with a new model
of trolling motor.
a. 6 c. 1 e. 4
b. 3 d. 5 f. 3
This section is designed to help determine how well you have mastered the
textbook material. Try to answer all of these questions and exercises without using
your textbook or the Review Points in the Student Guide. In answering the Review
Questions and Exercises, be sure to follow Step 4 of the study approach
recommended in the Introduction, p. vii.
6 CHAPTER 1
examine past performance and ____7. The term supply chain describes
systematically explore the flow of goods, services and
alternative ways of making information from the initial
better informed decisions in the sources of materials and
future. services to the delivery of
____5. The scorekeeping role of products to customers,
management accountants uses regardless of whether those
comparative analysis for activities occur in the same
decision making. organization or in other
____6. Managers should proceed organizations.
sequentially through the value ____8. The CFO, a line management
chain of business functions. function, is the executive
responsible for overseeing the
financial operations of an organ-
ization.
Multiple Choice
Exercises
1. Define strategy. Then specify the two broad strategies that companies choose
between.
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8 CHAPTER 1
2. For each of the following 3. For each of the following actions
activities, identify what role is being by companies, identify the applicable
performed by the management management theme.
accountant. CF: Customer focus
PS: Problem solving KSF: Key success factors (cost and
SK: Scorekeeping efficiency, quality, time,
AD: Attention directing innovation)
CI: Continuous improvement and
____a. Interpreting a monthly report benchmarking
that compares actual and VC: Value-chain and supply-chain
budgeted fuel consumption for analysis
each major building at a large
university. ____a. Company X monitors the
____b. Recording the cost of a sewer number and nature of customer
project on the books of a complaints on a customer-by-
construction company. customer basis.
____c. Analyzing the costs and benefits ____b. Company Y reports how long it
to a school district that is takes a new product to be
considering the purchase of new introduced to the market after
school buses. the initial concept for the
____d. Preparing the monthly product is approved by
statement for a customer. management.
____c. Company Z reduces the
budgeted labor cost of a
product by 1% each month
when evaluating the
performance of a plant
manager.
Completion Statements
1. Management accounting
2. Cost management
3. planning
4. budget
5. research and development (R&D); design of products, services, or processes;
production; marketing; distribution; customer service
6. cost-benefit
7. competence, confidentiality, integrity, objectivity
True-False
1. T
2. F Cost accounting provides information for both management accounting and
financial accounting. Cost accounting involves those parts of management
accounting and financial accounting where cost information is collected and
analyzed.
3. F Control has two aspects: (a) taking actions that implement the planning
decisions and (b) deciding how to evaluate performance and what feedback
to provide that will help future decision making.
4. T
5. F The statement describes the problem-solving role of management
accountants, not the scorekeeping role. The scorekeeping role entails
accumulating data and reporting results—to all levels of management—
describing how the organization is doing.
6. F Rather than proceeding sequentially through the value chain, organizations
can realize significant gains when various parts of the value chain work
together. For example, additional spending on R&D and product design might
be more than offset by lower costs of productions and customer service.
7. T
8. F The CFO, a staff management function (not a line management function) is
the executive responsible for overseeing the financial operations of an
organization, which typically include controllership, treasury, risk
management, taxes, and internal audit. Staff management exists to provide
advice and assistance to line management. Line management is directly
responsible for attaining the goals of the organization.
Multiple Choice
1. b Control includes (i) taking actions that implement the planning decisions and
(ii) deciding how to evaluate performance and what feedback to provide that
will help future decision making. Answers (a), (c) and (d) are aspects of
planning.
2. c The controller, a staff management function, is the financial executive
primarily responsible for both management accounting and financial
accounting.
3. a The scorekeeping role is accumulating data and reporting reliable results—to
all levels of management—describing how the organization is doing.
4. d The IMA’s Standards of Ethical Conduct for Management Accountants has
four standards: competence, confidentiality, integrity, and objectivity.
5. b There are four key success factors: cost and efficiency, quality, time, and
innovation. Value-chain and supply-chain analysis is another management
theme guiding the design and operation of management accounting systems.
Exercise 1
Strategy specifies how an organization matches its own capabilities with the
opportunities in the marketplace to accomplish its objectives. In other words,
strategy describes how an organization will compete and the opportunities its
employees should seek and pursue. Companies follow one of two broad
strategies:
Sell quality products or services at low prices. Examples are Wal-Mart and
Southwest Airlines.
Sell relatively unique products or services at higher prices than those
charged by competitors. Examples are Gucci and Ralph Lauren.
Choosing between these strategies is among the most important decisions that
managers make.
Exercise 2
a. AD b. SK c. PS d. SK
Exercise 3
a. CF b. KSF c. CI