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value in organizations.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
2
Copyright © 2020 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written onsent of McGraw-Hill Education.
4) The value chain is comprised of the activities that take place only during the production
process.
Answer: FALSE
Explanation: This statement is false. The value chain comprises activities from research and
development through the production process to customer service.
Difficulty: 1 Easy
Topic: Value Creation in Organizations
Learning Objective: 01-01 Describe the way managers use accounting information to create
Bloom's: Remember
5) If a poor facility layout exists and work-in-process inventory must be moved during the
production process, the company is likely to be performing some nonvalue-added activities.
Answer: TRUE
Explanation: The statement is true. If a poor facility layout exists and work-in-process
inventory must be moved during the production process, the company is likely to be performing
nonvalue-added activities.
Difficulty: 1 Easy
Topic: Our Framework for Assessing Cost Accounting Systems
Learning Objective: 01-03 Explain how cost accounting information is used for decision
making and performance evaluation in organizations.
Bloom's: Remember
AACSB: Reflective Thinking
6) Cost information itself is a product with its own customers.
Answer: TRUE
Explanation: The statement is true. Cost information itself is a product with its own customers,
who are managers that need to control and improve operations.
Difficulty: 1 Easy
Topic: Accounting Systems
Learning Objective: 01-02 Distinguish between the uses and users of cost accounting and
financial accounting information.
Bloom's: Remember
3
7) Financial accounting information is sufficient for making operational decisions.
Answer: FALSE
Explanation: The statement is false. Financial accounting information is not sufficient for
making operational decisions.
Difficulty: 1 Easy
Bloom's: Remember
8) Cost accounting information is commonly used in developing financial accounting

information.
Answer: TRUE
Explanation: The statement is true. Cost accounting information is commonly used in
developing financial accounting information.
Difficulty: 1 Easy
Bloom's: Remember
9) Financial accounting information is designed for decision-makers who are directly involved in
the daily management of the firm.
Answer: FALSE
Explanation: This statement is false. Financial accounting is designed for external parties; cost
accounting is designed for managers.
Difficulty: 1 Easy
Bloom's: Remember
4
10) It is more important for financial accounting information to be comparable between firms
than to be useful for managerial decision-making.
Answer: TRUE
Explanation: Important criteria for financial accounting include comparability and decision
relevance (for investors); decision relevance (for managers) and timeliness are the important
criteria for cost accounting.
Difficulty: 2 Medium
Bloom's: Understand
11) Cost accounting information developed for managers to use in making decisions must
comply with generally accepted accounting principles (GAAP) and international financial
reporting standards (IFRS).
Answer: FALSE
Explanation: This statement is false. In contrast to cost data for financial reporting to
shareholders, cost data for managerial use (that is, within the organization) need not comply with
GAAP or IFRS.
Bloom's: Understand
12) A cost driver is a factor that causes costs.
Answer: TRUE
Explanation: This statement is true. A cost driver is a factor that causes costs
Difficulty: 1 Easy
Topic: Cost Data for Managerial Decisions
Bloom's: Remember
5
13) A cost can be considered a differential cost for one particular course of action but not for
another course of action.
Answer: TRUE
Explanation: This statement is true. A differential cost is a cost that changes in response to a
particular course of action. A cost may change in response to one course of action but not in
response to a different course of action.
Difficulty: 1 Easy
Bloom's: Remember
14) A responsibility center can be a department, division, or segment, but not a subsidiary of the
parent company.
Answer: FALSE
Explanation: A responsibility center is a specific unit of an organization assigned to a manager
who is held accountable for its operations and resources. As such, a department, division,
segment, or subsidiary could be considered a responsibility center.
Bloom's: Understand
15) It is important that the manager assigned to lead a responsibility center be held accountable
for its operations.
Answer: TRUE
Explanation: The statement is true. Responsibility does not work without accountability.
Difficulty: 1 Easy
Bloom's: Remember
6
16) Budgeting is primarily used to determine year-end bonuses based on managerial and
organizational performance.
Answer: FALSE
Explanation: This statement is false. A budget is a financial plan of the revenues and resources
needed to carry out activities and meet financial goals. Budgeting helps managers decide whether
their goals can be achieved and, if not, what modifications are necessary.
Difficulty: 1 Easy
Bloom's: Remember
17) Managers are usually responsible for the revenues needed to achieve the targets set during
the budgeting process, but not the resources consumed to achieve those targets.
Answer: FALSE
Explanation: This statement is false. Usually, managers are responsible for both the revenues
and resources needed to carry out activities and meet financial goals.
Bloom's: Understand
18) In general, if activities that do not add value to the company can be eliminated, then costs
associated with them will also be eliminated.
Answer: TRUE
Explanation: This statement is true. In general, if activities that do not add value to the
company can be eliminated, then costs associated with them will also be eliminated.
Difficulty: 1 Easy
Bloom's: Remember
7
19) Accounting systems are important because they are a primary source of information for
managers.
Answer: TRUE
Explanation: This statement is true. Accounting systems are important because they are a
primary source of information for managers.
Difficulty: 1 Easy
Bloom's: Remember
20) Benchmarking is a continuous process of measuring a company's products, services, or

activities against competitors' performance.
Answer: TRUE
Explanation: This is the definition of benchmarking.
Difficulty: 1 Easy
Topic: Trends in Cost Accounting throughout the Value Chain
Learning Objective: 01-04 Identify current trends in cost accounting.
Bloom's: Remember
21) Activity-based costing (ABC) is a management tool that focuses on the continuous
improvement of all dimensions of a business.
Answer: FALSE
Explanation: This statement is false. ABC is a costing method that assigns costs to activities
and then assigns them to products based on the products' consumption of activities.
Bloom's: Understand
8
22) Lean manufacturing techniques are used only in the production process.
Answer: FALSE
Explanation: This statement is false. Lean manufacturing techniques can be applied to design,
materials, and cost accounting decisions throughout the life of a product.
Bloom's: Understand
23) Typical ERP systems integrate information systems that link production, purchasing, human
resources, and finance into a single comprehensive information system.
Answer: TRUE
Explanation: This statement is true. ERP systems are integrated information systems that link
the various systems of the enterprise into a single comprehensive information system.
Bloom's: Understand
24) Managers face ethical situations on a daily basis, while accountants face them infrequently.
Answer: FALSE
Explanation: This statement is false. Professional accountants, managers, and business owners
face ethical situations on an everyday basis.
Difficulty: 1 Easy
Topic: Choices: Ethical Issues for Accountants
Learning Objective: 01-05 Understand ethical issues faced by accountants and ways to deal
with ethical problems that you face in your career.
Bloom's: Remember
AACSB: Ethics
9
25) Compliance with Sarbanes-Oxley does not mean that the manager has met all of his or her
ethical responsibilities.
Answer: TRUE
Explanation: This statement is true. Compliance with Sarbanes-Oxley does not mean that the
manager has met all of his or her ethical responsibilities.
Difficulty: 3 Hard
Bloom's: Apply
AACSB: Ethics
26) Ethical behavior depends more on a firm's code of conduct than the individual's personal
beliefs.
Answer: FALSE
Explanation: This statement is false. Codes of conduct look good on paper, but ultimately
much of ethical behavior comes from an individual's personal beliefs.
Bloom's: Understand
AACSB: Ethics
27) Cost accounting information can be used by managers to defraud customers, creditors, and
owners.
Answer: TRUE
Explanation: The statement is true. The design of the cost accounting system has the potential
to be misused to defraud customers, employees, or shareholders.
Difficulty: 1 Easy
Bloom's: Remember
10
28) The boundary between what is cost accounting and what belongs in another discipline is
often blurred.
Answer: TRUE
Explanation: This statement is true. Real world problems are generally multidisciplinary.
Bloom's: Understand
29) The set of activities that transforms raw resources into the goods and services end users
purchase and consume is called the:
A) value chain.
B) supply chain.
C) demand chain.
D) cost-benefit analysis.
Answer: A
Explanation: The value chain is the set of activities that transforms raw resources into the
goods and services end users purchase and consume.
Difficulty: 1 Easy
Bloom's: Remember
30) Which of the following activities would not be considered a value-added activity?
A) Production
B) Marketing
C) Accounting
D) Distribution
Answer: C
Explanation: Accounting for something does not add value; it is an administrative function.
Bloom's: Understand
11
31) Which of the following statements is false?
A) In essence, the value chain and the supply chain are similar; each creates something for which
the customer is willing to pay.
B) Financial accounting information is important because it is sufficient to provide all the
information for operational decisions commonly made by managers.
C) The supply or distribution chain is a linked set of organizations that exchange goods and
services in combination to provide a final product or service to the customer.
D) Eliminating nonvalue-added activities always reduces costs without affecting the value of the
product to customers.
Answer: B
Explanation: Financial accounting information is not sufficient for operational decisions made
by managers.
Topic: Value Creation in Organizations; Accounting Systems; Our Framework for Assessing
Cost Accounting Systems
value in organizations.; 01-02 Distinguish between the uses and users of cost accounting and
financial accounting information.; 01-03 Explain how cost accounting information is used for
decision making and performance evaluation in organizations.
Bloom's: Understand
32) Managers do not make decisions about future events based on:
A) Perfect information.
B) Estimated information.
C) Actual information.
D) Financial information.
Answer: A
Explanation: Perfect information is never available; there is always some uncertainty.
Bloom's: Understand
12
33) Which of the following is a nonvalue-added activity?
A) Product design
B) Customer service
C) Research and development
D) Rework of defective items
Answer: D
Explanation: Performing a task correctly adds value; correcting mistakes does not add value.
Bloom's: Understand
34) (CMA adapted) A costing method that first assigns costs to activities and then assigns them
to products based on the products' consumption of those activities is:
A) full-absorption costing.
B) activity-based costing.
C) variable costing.
D) benchmarking.
Answer: B
Explanation: Activity-based costing is a costing method that first assigns costs to activities and
then assigns them to products based on the products' consumption of those activities.
Difficulty: 1 Easy
Bloom's: Remember
13
35) (CMA adapted) Cost drivers are:
A) activities that cause costs to increase as the activity increases.
B) accounting techniques and practices used to control costs.
C) accounting reimbursements used to evaluate whether performance is proceeding according to
plan.
D) a mechanical basis, such as machine hours, computer time, or factory square footage, used to
assign costs to activities.
Answer: A
Explanation: Cost drivers are factors that cause costs.
Difficulty: 1 Easy
Bloom's: Remember
36) During 2020, the Beach Restaurant had sales revenues and food costs of $800,000 and
$600,000, respectively. During 2021, Beach plans to introduce a new menu item that is expected
to increase sales revenues by $100,000 and food costs by $40,000. Assuming no changes are
expected for the other food items, operating profits for 2021 are expected to increase by:
A) $260,000.
B) $100,000.
C) $60,000.
D) $40,000.
Answer: C
Explanation: Increase in operating profits would be $100,000 − $40,000 = $60,000.
Difficulty: 3 Hard
Bloom's: Apply
14
37) (CMA adapted) The process of creating a financial plan of the revenues and resources
needed to carry out activities and meet financial goals is referred to as:
A) budgeting.
B) benchmarking.
C) cost-benefit analysis.
D) value-added analysis.
Answer: A
Explanation: Budgeting is the process of creating a financial plan of the revenues and resources
needed to carry out activities and meet financial goals.
Difficulty: 1 Easy
Bloom's: Remember
38) The field of accounting that reports according to generally accepted accounting principles
(GAAP) is called:
A) cost accounting.
B) financial accounting.
C) managerial accounting.
D) responsibility accounting.
Answer: B
Explanation: Financial accounting is governed by generally accepted accounting principles
(GAAP). Cost, managerial, and responsibility accounting do not depend on GAAP.
Difficulty: 1 Easy
Bloom's: Remember
15
39) The field of accounting that focuses on the criterion of relevant information rather than
comparability of firms is:
A) cost accounting.
B) financial accounting.
C) responsibility accounting.
D) international accounting.
Answer: A
Explanation: The important criterion of cost accounting is that information be relevant for
managers making operational decisions; individuals making decisions using financial accounting
data are interested in comparing firms.
Difficulty: 1 Easy
Bloom's: Remember
40) The just-in-time (JIT) method of production focuses on:

A) increasing sales revenue.
B) reducing inventories.
C) increasing customer service.
D) reducing operating expenses.
Answer: B
Explanation: JIT focuses on reducing inventories; the other items are all results or outcomes.
Difficulty: 1 Easy
Bloom's: Remember
16
41) (CIA adapted) The primary reason for adopting total quality management (TQM) is to
achieve:
A) reduced delivery time.
B) reduced delivery charges.
C) greater customer satisfaction.
D) greater employee participation.
Answer: C
Explanation: TQM focuses on the customer.
Difficulty: 1 Easy
Bloom's: Remember
42) According to the Institute of Management Accountants (IMA), the final step in resolving an
ethical dilemma is to:
A) consult your own attorney as to legal obligations and rights concerning the ethical conflict.
B) clarify relevant ethical issues by initiating a confidential discussion with an IMA Ethical
Counselor, an appropriate and confidential ethics hotline, or other impartial advisor.
C) consult with the local police.
D) discuss the situation with an immediate supervisor.
Answer: A
Explanation: Per the IMA Code of Ethics, consulting your own attorney is a last step.
Bloom's: Understand
AACSB: Ethics
17
43) According to the Institute of Management Accountants (IMA), the first step in resolving an
ethical dilemma is to:
A) consult your own attorney as to legal obligations and rights concerning the ethical conflict.
B) call the IMA's ethics hotline.
C) clarify relevant ethical issues by initiating a confidential discussion with an IMA Ethical
Counselor or other impartial advisor.
D) discuss the situation with an immediate supervisor, except when it appears that the supervisor
is involved, or with the next level supervisor if involvement of the immediate supervisor is
suspected.
Answer: D
Explanation: It is best to discuss the situation with the immediate supervisor before bringing in
outsiders.
Bloom's: Understand
AACSB: Ethics
44) Which of the following is not one of the basic standards of the Institute of Management
Accountants (IMA) Code of Ethics?
A) Competence
B) Confidentiality
C) Honesty
D) Integrity
Answer: C
Explanation: Competence, confidentiality, and integrity are all basic standards of the IMA
Code of Ethics. Honesty is not.
Topic: Appendix-Institute of Management Accountants Code of Ethics; Choices: Ethical Issues
for Accountants
Bloom's: Understand
AACSB: Ethics
18
45) Which of the following is not one of the overarching ethical principles of the Institute of
Management Accountants (IMA) Code of Ethics?
A) Competence
B) Responsibility
C) Honesty
D) Objectivity
Answer: A
Explanation: Competence is not one of the overarching ethical principles of the IMA Code of
Ethics.
for Accountants
Bloom's: Understand
AACSB: Ethics
46) A general term for a metric that indicates how well an individual, business, product, or firm
is working is called:
A) a performance measure.
B) benchmarking.
C) a budget.
D) a responsibility center.
Answer: A
Explanation: A performance measure is a metric that indicates how well an individual,
business, product, or firm is working.
Bloom's: Understand
19
47) The cost accounting system that minimizes wasteful or unnecessary transaction processes is:
A) performance measure.
B) benchmarking.
C) budgeting.
D) lean accounting.
Answer: D
Explanation: Lean accounting systems are designed to minimize wasteful or unnecessary
transaction processes.
Bloom's: Understand
48) The continual process of measuring a company's own products, services, or activities against
competitors' performance is:
A) performance measure.
B) benchmarking.
C) budgeting.
D) responsibility center.
Answer: B
Explanation: Benchmarking is a process of measuring a company's own products, services, or
activities against competitors' performance.
Bloom's: Understand
20
49) The costing method that first assigns costs to activities and then assigns them to products
based on the products' consumption of activities is called:
A) lean accounting.
B) responsibility centers.
C) activity-based costing.
D) budgeting.
Answer: C
Explanation: This costing method is a basic concept of ABC.
Bloom's: Understand
50) Having one or more of the firm's activities performed by another firm or individual in the
supply or distribution chain is called:
A) lean accounting.
B) responsibility centers.
C) activity-based costing.
D) outsourcing.
Answer: D
Explanation: Outsourcing is having one or more of the firm's activities performed by another
firm or individual in the supply or distribution chain.
Bloom's: Understand
21
51) Systems that identify the costs of producing defective units as well as low-quality items that
lose sales are called:
A) customer relationship management systems.
B) distribution chains.
C) enterprise resource planning systems.
D) cost of quality systems.
Answer: D
Explanation: Cost of quality systems identify costs of producing defective units as well as the
lost sales associated with poor-quality products.
Bloom's: Understand
52) Systems that allow firms to target profitable customers by assessing customer revenue and
costs are called:
A) customer relationship management systems.
B) distribution chains.
C) enterprise resource planning systems.
D) cost of quality systems.
Answer: A
Explanation: CRM systems allow firms to target more precisely those customers who are
profitable by assessing the costs to serve a customer along with the revenues a customer
generates.
Bloom's: Understand
22
53) Information technology that links the various processes of the company into a single
comprehensive information system is called:
A) a customer relationship management system.
B) a distribution chain.
C) a cost of quality system.
D) an enterprise resource planning system.
Answer: D
Explanation: ERP systems are integrated information systems that link various activities in an
organization.
Bloom's: Understand
54) A management method by which the organization seeks to excel on all dimensions of quality
is called:
A) customer relationship management.
B) a just-in-time method.
C) total quality management.
D) cost of quality.
Answer: C
Explanation: The key words are "management method" and "all dimensions of quality."
Bloom's: Understand
55) Which of the following is not a key financial manager in an organization?

A) Chief financial officer
B) Treasurer
C) External auditor
D) Controller
Answer: C
Explanation: Correct! The external auditor is not a financial manager in an organization.
Difficulty: 1 Easy
Topic: Key Financial Players in the Organization
Bloom's: Remember
23
56) Which of the following is not normally considered part of the value chain?
A) Research and development
B) Purchasing
C) Administration
D) Distribution
Answer: C
Explanation: Administration is imbedded in all of the business functions; it is not a separate
function of the value chain.
Difficulty: 1 Easy
Bloom's: Remember
57) In 2020, the TransUnion Company had consulting revenues of $1,000,000 while costs were
$750,000. In 2021, TransUnion will be introducing a new service that will generate $150,000 in
sales revenues and $60,000 in costs. Assuming no changes are expected for the other services,
operating profits are expected to increase between 2020 and 2021 by:
A) $250,000.
B) $150,000.
C) $90,000.
D) $60,000.
Answer: C
Explanation: Increase in operating profit would be $150,000 − $60,000 = $90,000.
Difficulty: 3 Hard
Bloom's: Apply
24
58) In 2020, the Merkel Company had revenues of $2,000,000 and costs of $1,500,000. During
2021, Merkel will be introducing a new product line that is expected to increase sales revenue by
$200,000 and costs by $160,000. Assuming no changes are expected for the other products, the
operating profits are expected to increase by:
A) $540,000.
B) $200,000.
C) $160,000.
D) $40,000.
Answer: D
Explanation: Increase in operating profit would be $200,000 − $160,000 = $40,000.
Difficulty: 3 Hard
Bloom's: Apply
59) Moving of inventory is an example of a(n):

A) cost-benefit analysis.
B) value-added activity.
C) activity-based cost.
D) nonvalue-added activity.
Answer: D
Explanation: Producing product adds value, moving it around does not add value.
Difficulty: 1 Easy
Bloom's: Remember
25
60) Costs that differ among or between two or more alternative courses of action are:
A) differential costs.
B) cost-benefit analysis.
C) activity-based costs.
D) cost drivers.
Answer: A
Explanation: Differential costs are the costs that change in response to a particular course of
action.
Bloom's: Understand
61) Which of the following activities would not be included in the value chain of a
manufacturing company?
A) Research and Development
B) Customer Service
C) Design
D) Accounting
Answer: D
Explanation: Accounting is not a separate component in the value chain, instead it is included
in every business function of the value chain.
Difficulty: 1 Easy
Bloom's: Remember
26
62) A firm's reply to customer questions via email would be an example of which component of
the value chain?
A) Customer Service
B) Marketing
C) Design
D) Supply
Answer: A
Explanation: This is an example of customer service.
Difficulty: 1 Easy
Bloom's: Remember
63) The delivery of products or services to customers is an example of which element in the
value chain?
A) Production
B) Design
C) Marketing
D) Distribution
Answer: D
Explanation: This is an example of distribution.
Difficulty: 1 Easy
Bloom's: Remember
27
64) Which of the following provides much of the information necessary for the coordination of
the value chain?
A) Distribution chain.
B) Financial accounting system.
C) Cost accounting system.
D) Supply chain.
Answer: C
Explanation: The cost accounting system provides much of the information necessary for the
coordination of the value chain.
Bloom's: Understand
65) Advertising costs would be associated with which of the following value chain components?
A) Production.
B) Research and Development.
C) Distribution.
D) Marketing and sales.
Answer: D
Explanation: Advertising costs would be associated with the value chain component of
marketing and sales.
Bloom's: Understand
28
66) Which part of the value chain is outside the firm?
A) Design component
B) Research and Development component
C) Production activity
D) Distribution chain
Answer: D
Explanation: The distribution chain is a part of the value chain outside the firm.
Bloom's: Understand
67) Which of the following statements regarding the value chain is true?
A) Service firms benefit from the value chain more than manufacturing firms.
B) Value chain components do not overlap.
C) Value is not created until after the research and development stage.
D) Administrative functions are not included as a separate component of the value chain.
Answer: D
Explanation: It is true that administrative functions are not included as a separate component of
the value chain.They are included instead in every business function of the value chain.
Bloom's: Understand
29
68) Which of the following statements concerning the value chain is false?
A) The goal of a value chain is to find areas where a company can either add value or reduce
cost.
B) The value chain focuses on the entire production process, as well as the sale of the product
and service after the sale.
C) If a company cannot compete in a specific area of the value chain, it might outsource that
portion of the value chain to another entity which can perform it better.
D) Successful firms are ones that operate within the entire value chain, thereby overseeing every
aspect of the value chain for the customer.
Answer: D
Explanation: A "total value chain focus" ensures the utility of each value chain function.
Difficulty: 3 Hard
Bloom's: Apply
69) Which of the following could be considered part of the value chain in a service firm?
A) Inspection of product
B) Advertising
C) Raw materials
D) Distribution
Answer: B
Explanation: Advertising would be a part of the marketing and sales component of the value
chain in a service firm. The other three answer choices describe an activity with a "physical"
product, not a service.
Bloom's: Understand
30
70) Place the four components in the order they appear along the value chain: A = Customer
service; B = Design; C = Distribution; and D = Production.
A) ABDC
B) ACDB
C) BDCA
D) BADC
Answer: C
Explanation: The correct order is Design, Production, Distribution, and Customer service.
Bloom's: Understand
71) Managers evaluate value-added activities to determine how they contribute to the final
product's:
A) service only.
B) quality only.
C) cost only.
D) service, quality, and cost.
Answer: D
Explanation: Managers evaluate value-added activities to determine how they contribute to the
final product's service, quality, and cost.
Bloom's: Understand
31
72) Which of the following is the best reason why cost accounting information does not need to
be comparable to similar information in other organizations?
A) Because it is only used by investors and creditors.
B) Because no publicly traded companies use cost accounting.
C) Because IFRS and cost accounting are converging which eliminates the need for
comparability.
D) Because managers that use this information are making decisions only for their organization.
Answer: D
Explanation: Because the managers are making decisions only for their own organization, there
is no need for the information to be comparable to similar information in other organizations.
Bloom's: Understand
73) Financial accounting:

A) focuses on the future.
B) must comply with GAAP (generally accepted accounting principles).
C) reports include detailed information on the various operating segments of the business.
D) is prepared for the use of management.
Answer: B
Explanation: Financial accounting must comply with GAAP. The other answer choices are
characteristics of cost accounting.
Bloom's: Understand
32
74) The individual who would most likely use only financial accounting information in making
decisions is a:
A) vice president of marketing.
B) factory supervisor.
C) department manager.
D) company shareholder.
Answer: D
Explanation: Company shareholders would most likely use only financial accounting
information in making decisions. The other answer choices are internal users who focus
primarily on cost accounting information.
Bloom's: Understand
75) The financial accounting system is the primary source of information for:
A) decision making on the factory floor.
B) improving the performance level of customer service.
C) planning the budget for next year.
D) preparing the income statement for shareholders.
Answer: D
Explanation: Financial accounting information is used primarily for preparing the income
statement. The other answer choices describe internal functions that have to do with the cost
accounting system.
Bloom's: Understand
33
76) Managerial decisions using cost accounting are more appropriate for which types of costs?
A) future costs.
B) historical costs.
C) current costs.
D) externally reported costs.
Answer: A
Explanation: Managerial decisions deal with the future, so estimates of future costs are more
valuable for decision making than are the historical and current costs that are reported externally.
Bloom's: Understand
77) At the middle management level, where managers supervise work and make operating
decisions, cost information highlights:
A) the company's overall performance.
B) comparability across firms.
C) financial position and income according to accounting rules.
D) some aspect of operations that is different from expectations.
Answer: D
Explanation: At the middle management level, where managers supervise work and make
operating decisions, cost information is used to identify problems by highlighting when some
aspect of operations is different from expectations.
Bloom's: Understand
34
78) Financial accounting provides a historical perspective, while cost accounting emphasizes:
A) reporting to shareholders.
B) a current perspective.
C) the future.
D) past transactions.
Answer: C
Explanation: Future focus is a basic function of cost accounting. The other answer choices
relate to financial accounting.
Bloom's: Understand
79) The concept of considering both the costs and benefits of a proposal is known as:
A) cost-benefit analysis.
B) performance measurement.
C) nonvalue-added analysis.
D) preparation of financial statements.
Answer: A
Explanation: The concept of considering both the costs and benefits of a proposal is
cost-benefit analysis.
Bloom's: Understand
35
80) Departmental managers at Boswell Department Store are allowed considerable discretion in
both sourcing and pricing of products, based on local tastes and competition, as well as being
responsible for departmental staffing. Based on the concept of the responsibility center, which of
the following would not be a performance measure that would be useful in evaluating the
performance of departmental managers at the stores?
A) Departmental profit compared to budgeted departmental profit.
B) Trends in general and administrative expenses for each store.
C) Growth in departmental sales compared to the prior period sales
D) Departmental customer satisfaction.
Answer: B
Explanation: A responsibility center allows the specific unit of an organization to be assigned
to a manager who is held accountable for its operations and resources. The departmental
manager does not have responsibility for controlling all the administrative expenses for each
store location.
Bloom's: Understand
36
81) Snuggle Toys, Inc. had the following summarized results for the month ending July 31:
Actual Budget
Revenues $ 60,000 $ 52,000
Costs 53,600 45,600
Operating profits $ 6,400 $ 6,400
As the cost accountant, which single statement related to the above financial results is most
appropriate in the report to management?
A) The departmental manager is performing to expectations because budgeted profits equals
actual profits.
B) Revenues are above budget and a bonus based on this increase should be considered.
C) Costs as a percentage of revenues are above budget and a further scrutiny of the results might
be appropriate.
D) Costs are 17.5% above budget and the department manager's position should be critically
evaluated by senior management.
Answer: C
Explanation: If revenue is higher, then profits should be higher, unless there is a problem with
costs.
Difficulty: 3 Hard
Bloom's: Evaluate
37
82) CraftMaster Corporation purchased a machine 7 years ago for $339,000 when it launched
product X05K. Unfortunately, this machine has broken down and cannot be repaired. The
machine could be replaced by a new model 360 machine costing $353,000 or by a new model
280 machine costing $332,000. Management has decided to buy the model 280 machine. It has
less capacity than the model 360 machine, but its capacity is sufficient to continue making
product X05K. Management also considered, but rejected, the alternative of dropping product
X05K and not replacing the old machine. If that were done, the $332,000 invested in the new
machine could instead have been invested in a project that would have returned a total of
$426,000. In making the decision to buy the model 280 machine rather than the model 360
machine, the differential cost was:
A) $21,000.
B) $87,000.
C) $7,000.
D) $14,000.
Answer: A
Explanation: Model 360 cost ($353,000) − Model 280 cost ($332,000) = Differential cost
($21,000).
Difficulty: 3 Hard
Bloom's: Evaluate
83) When comparing activity-based costing (ABC) with conventional costing methods, which of
the following is the key benefit of the ABC method?
A) It is cheaper to implement.
B) It is based on only one or two factors, generally volume-related.
C) It is simpler.
D) It generally provides more accurate cost numbers.
Answer: D
Explanation: Activity-based costing provides more accurate cost numbers than conventional
costing methods.
Bloom's: Understand
AACSB: Knowledge Application
38
84) Geno's Body Shop had sales revenues and operating costs in 2020 of $650,000 and
$525,000, respectively. In 2021, Geno plans to expand the services it provides to customers to
include detailing services. Revenues are expected to increase by $85,000 and operating costs by
$50,000 as a result of this expansion. Assuming that there are no changes to the existing body
shop business, operating profits would be expected to increase during 2021 by:
A) $125,000.
B) $85,000.
C) $160,000.
D) $35,000.
Answer: D
Explanation: Revenues ($85,000) − Operating costs ($50,000) = Additional operating profit
($35,000).
Difficulty: 3 Hard
Bloom's: Apply
85) Geno's Body Shop had sales revenues and operating costs in 2020 of $650,000 and
$525,000, respectively. In 2021, Geno plans to expand the services it provides to customers to
include detailing services. Revenues are expected to increase by $85,000 and operating costs by
$50,000 as a result of this expansion. Assuming that there are no changes to the existing body
shop business, what is the amount of operating profits that are expected be earned in 2021?
A) $125,000
B) $85,000
C) $160,000
D) $35,000
Answer: C
Explanation: Total Revenues ($650,000 + $85,000) − Total Operating costs ($525,000 +
$50,000) = Total operating profit = $160,000.
Difficulty: 3 Hard
Bloom's: Apply
39
86) The goals and objectives of establishing budgeting in an organization include all of the
following except:
A) the ability to decide whether goals can be achieved.
B) the resources needed to carry out its tasks.
C) anticipated revenues to be generated.
D) the consistent application of generally accepted accounting principles.
Answer: D
Explanation: Correct! Consistent application of GAAP has nothing to do with goals and
objectives of establishing budgets.
Bloom's: Understand
87) In 2020, the Allen Company had consulting revenues of $1,000,000, while operating costs
were $750,000. In 2021, Allen will be introducing a new service that will generate $150,000 in
sales revenues and $60,000 in operating costs. Assuming no changes are expected for the other
services, the differential operating costs for 2021 will be:
A) $250,000.
B) $150,000.
C) $90,000.
D) $60,000.
Answer: D
Explanation: The additional operating costs are the differential amount of $60,000.
Difficulty: 3 Hard
Bloom's: Apply
40
88) In 2020, the Allen Company had consulting revenues of $1,000,000 while operating costs
were $750,000. In 2021, Allen will be introducing a new service that will generate $150,000 in
sales revenues and $60,000 in operating costs. Assuming no changes are expected for the other
services, the differential revenue for 2021 will be:
A) $250,000.
B) $150,000.
C) $90,000.
D) $60,000.
Answer: B
Explanation: The additional revenues are the differential amount of $150,000.
Difficulty: 3 Hard
Bloom's: Apply
89) San Juan, Inc. is considering two alternatives: A and B. The costs associated with the
alternatives are listed below:
Alternative A Alternative B
Material costs $ 35,000 $ 57,000
Processing costs 36,000 57,000
Building costs 12,000 28,000
Equipment rental 19,000 19,000
Are the materials costs and processing costs differential in the choice between alternatives A and
B? (Ignore the building costs and equipment rental in this question.)
A) Neither materials costs nor processing costs are differential.
B) Both materials costs and processing costs are differential.
C) Only processing costs are differential.
D) Only materials costs are differential.
Answer: B
Explanation: Both material costs and processing costs are differential because they differ
between the two alternatives.
Difficulty: 3 Hard
Bloom's: Evaluate
41
90) San Juan, Inc. is considering two alternatives: A and B. The costs associated with the
alternatives are listed below:
Alternative A Alternative B
If only the differential costs of the two decisions are considered, the total differential costs of
Alternative B is:
A) $161,000.
B) $131,500.
C) $59,000.
D) $102,000.
Answer: C
Explanation: All of the costs except equipment rental are differential ($22,000 + $21,000 +
$16,000 = $59,000).
Difficulty: 3 Hard
Bloom's: Evaluate
42
91) Two alternatives, identified X and Y, are under consideration at Hayden Corporation. Costs
associated with the alternatives are listed below.
Alternative X Alternative Y
Are the materials costs and processing costs differential in the choice between alternatives X and
Y? (Ignore the building costs and equipment rental in this question.)
A) Both materials costs and processing costs are differential.
B) Only materials costs are differential.
C) Only processing costs are differential.
D) Neither materials costs nor processing costs are differential.
Answer: A
Explanation: Both material costs and processing costs are differential because they differ
between the two alternatives.
Bloom's: Evaluate
43
92) Two alternatives, identified X and Y, are under consideration at Hayden Corporation. Costs
associated with the alternatives are listed below.
Alternative X Alternative Y
What is the total differential costs of Alternative Y over Alternative X?

A) $140,000
B) $123,000
C) $34,000
D) $106,000
Answer: C
Explanation: Both material costs and processing costs are differential ($12,000 + $22,000 =
$34,000).
Difficulty: 3 Hard
Bloom's: Evaluate
93) Marcus Roberts is putting together a training session about value chain components. Which
of the following would be a good example of a cost for the component of purchasing?
A) Advertising
B) Warranty repairs
C) Vendor certification
D) Patent applications
Answer: C
Explanation: Vendor certification is an example related to the value chain component of
purchasing.
Bloom's: Understand
44
94) Anna Potts is putting together a training session about value chain components. Which of the
following would be a good example of a cost for the component of distribution?
A) Advertising
B) Warranty repairs
D) Website creation, hosting, and maintenance
Answer: D
Explanation: Website creation, hosting, and maintenance is an example related to the value
chain component of distribution.
Bloom's: Understand
95) Megan Towe is putting together a training session about value chain components. Which of
the following would be a good example of a cost for the component of research and
development?
A) Advertising
B) Warranty repairs
D) Patent applications
Answer: D
Explanation: Patent applications is an example related to the value chain component of
research and development.
Bloom's: Understand
45
96) An Enterprise Resource Planning (ERP) System can best be described as:
A) a collection of programs that use a variety of unconnected databases.
B) a single database that collects data and feeds it into applications that support each of the
company's business activities, such as purchases, production, distribution, and sales.
C) a database that is primarily used by a purchasing department to determine the correct amount
of a particular supply item to purchase.
D) a sophisticated means of linking two or more companies to facilitate their planning processes.
Answer: B
Explanation: An ERP system links the various systems of the enterprise into a single
comprehensive information system.
Bloom's: Understand
AACSB: Technology
97) The specific unit of an organization that is assigned to a manager who is held accountable for
that unit’s operations and resources is known as a:
A) responsibility center.
B) cost driver.
C) nonvalue-added activity.
D) budget.
Answer: A
Explanation: The objective of value chain management is to make decisions that increase value
to customers and lower costs of products and services.
Bloom's: Understand
AACSB: Technology
46
98) Research and development (R&D), production, and customer service are business functions
that are all included as part of:
A) the value chain.
B) benchmarking.
C) marketing.
D) the supply chain.
Answer: A
Explanation: All three of these business functions are found in the value chain.
Bloom's: Understand
99) All of the following words describe benchmarking except:

A) ongoing.
B) one-time event.
C) continuous.
D) measuring process.
Answer: B
Explanation: Benchmarking is a continuous process of measuring a company's own products,
services, or activities against competitor's performance.
Bloom's: Understand
100) All of the following are examples of total quality management (TQM) practices except:
A) Redesigning a product to reduce its parts by 50 percent.
B) Reducing the movement required in a manufacturing job.
C) Separating the sales and services functions.
D) Raising raw material quality standards.
Answer: C
Explanation: Separating the sales and services functions is not an example of TQM practices.
Difficulty: 3 Hard
Bloom's: Apply
47
101) Which area(s) of a business can be improved by using a just-in-time (JIT) system?
A) Production, purchasing, and delivery.
B) Production only.
C) Purchasing only.
D) Production and purchasing only.
Answer: A
Explanation: Production, purchasing, and delivery can be improved by using a JIT system.
Bloom's: Understand
102) Examples of the controller's functions include all except:

A) cost accounting policies.
B) budgeting.
C) investor relations.
D) general ledger.
Answer: C
Explanation: All are examples of the controller's functions except for investor relations.
Difficulty: 1 Easy
Bloom's: Remember
103) Cost accounting is an integral part of the ________ function in an organization.

A) treasurer's
B) controller's
C) internal auditor's
D) president's
Answer: B
Explanation: Cost accounting is an integral part of the controller's function.
Difficulty: 1 Easy
Bloom's: Remember
48
104) All of the following actions enhance the new focus on making cost accounting information
more relevant in helping a firm achieve strategic goals except:
A) increasing emphasis on the management accountant as a business partner.
B) increasing emphasis on external financial reporting.
C) decreasing emphasis on financial statement inventory cost valuation.
D) increasing emphasis on timely and useful information.
Answer: B
Explanation: Financial accounting focuses on external financial reporting; whereas, cost
accounting information is designed to help managers make better decisions.
Difficulty: 3 Hard
Bloom's: Apply
105) Which of the following statements is false regarding total quality management (TQM)?
A) The adoption of TQM means that the organization is managed to excel on all dimensions.
B) The adoption of TQM means that the customer ultimately defines quality.
C) With TQM, managers determine the company's performance standards according to what is
important to them.
D) TQM is a management method focused on quality for the customer.
Answer: C
Explanation: With TQM, the customers determine the company's performance standards
according to what is important to them.
Bloom's: Understand
49
106) The Institute of Management Accountants' (IMA) standards of ethical conduct for
management accountants includes the elements of:
A) competence, confidentiality, integrity, and relevance.
B) competence, confidentiality, integrity, and credibility.
C) competence, confidentiality, independence, and objectivity.
D) competence, accuracy, integrity, and independence.
Answer: B
Explanation: IMA members have a responsibility to comply with and uphold the standards of
Competence, Confidentiality, Integrity, and Credibility.
for Accountants
Bloom's: Understand
AACSB: Ethics
107) According to the IMA Code of Ethics, what should a management accountant do if a
significant ethical situation can't be resolved?
A) The accountant should confront the guilty party and demand the unethical action be stopped.
B) The accountant should try to rationalize and understand the position of the other party.
C) The accountant should say nothing about the matter until he or she has retired.
D) The accountant should first discuss the matter with the immediate supervisor.
Answer: D
Explanation: Correct! This is a step that the accountant should take.
Bloom's: Understand
AACSB: Ethics
50
108) With the enactment of the Sarbanes-Oxley Act of 2002, CEOs and CFOs are now
responsible for all of the following except:
A) stipulating that the financial statements do not omit material information.
B) attesting to the adequacy of the company's internal controls.
C) attesting to the accuracy of the company's credit rating with the largest rating agencies.
D) disclosing that they have notified the company's auditors and audit committee of any fraud
that involves management.
Answer: C
Explanation: Attesting to the accuracy of external credit ratings is not a requirement under the
Sarbanes-Oxley Act of 2002.
Bloom's: Understand
AACSB: Ethics
109) The Sarbanes-Oxley Act of 2002 requires an effective internal control system for publicly
owned firms. Therefore, with regards to strategic investment decisions, it is important that
management consider including all of the following except:
A) internal audits of strategic decisions.
B) a code of ethics.
C) a system of preparing and reporting on investment decisions.
D) a system that limits information available to investors.
Answer: D
Explanation: The Sarbanes-Oxley Act does not suggest that management limit information
available to investors.
Bloom's: Understand
AACSB: Reflective Thinking; Ethics
51
110) Where there is a lack of good performance measures, it is difficult to motivate managers by
using:
A) performance-based incentives.
B) monetary rewards.
C) compensation.
D) rewards for products.
Answer: A
Explanation: Good performance measures are necessary in implementing performance-based
incentives.
Bloom's: Understand
111) Which of the following is a false statement regarding cost information and ethical
responsibilities?
A) Compliance with Sarbanes-Oxley guarantees that a manager has met all of his or her ethical
responsibilities.
B) Sarbanes-Oxley is important for managers who design cost information systems.
C) Managers must be aware of the potential that cost information could be misleading or support
fraudulent activity.
D) Managers need to understand that performance measurement and compensation systems can
lead to unethical conduct.
Answer: A
Explanation: Compliance with Sarbanes-Oxley does not mean that a manager has met all of his
or her ethical responsibilities.
Bloom's: Understand
52
112) Carley Inc. incurs many types of costs in its operations. Place the number of the appropriate
stage in the value chain in Column 2 in the blank next to each cost in column 1.
Stage in the Value

Cost Chain
________ Transportation costs to ship vans to customers 1. Customer Service
________ Labor costs for factory workers 2. Distribution
Overtime costs for scientists working on new 3. Research &
________ engine technology Development
________ Utilities cost for the design testing center 4. Marketing
Costs to survey customers about their
________ satisfaction 5. Production
________ Costs to sponsor a sporting event 6. Design
Answer:
Stage in the Value
Cost Chain
2 Transportation costs to ship vans to customers 1. Customer Service
5 Labor costs for factory workers 2. Distribution
Overtime costs for scientists working on new engine 3. Research &
3 technology Development
6 Utilities cost for the design testing center 4. Marketing
1 Costs to survey customers about their satisfaction 5. Production
4 Costs to sponsor a sporting event 6. Design
Difficulty: 1 Easy
Bloom's: Remember
53
113) SuperMax is an integrated provider of genetically engineered corn. Many types of costs are
incurred in its operations. Place the number of the appropriate stage in the value chain in Column
2 in the blank next to each cost in column 1.
Stage in the Value

Cost Chain
Warehouse costs to store seed awaiting
________ shipment to customers 1. Customer Service
________ Utility costs for seed mill 2. Distribution
3. Research &
________ Equipment costs in genetics laboratory Development
________ Labor costs to staff help-line call center 4. Marketing
Costs to prepare advertising campaign in
________ national agriculture magazine 5. Production
________ Costs to contract with growers to provide seed 6. Design
Answer:
Stage in the Value
Cost Chain
Warehouse costs to store seed awaiting shipment to
2 customers 1. Customer Service
5 Utility costs for seed mill 2. Distribution
3. Research &
3 Equipment costs in genetics laboratory Development
1 Labor costs to staff help-line call center 4. Marketing
Costs to prepare advertising campaign in national
4 agriculture magazine 5. Production
6 Costs to contract with growers to provide seed 6. Purchasing
Difficulty: 1 Easy
Bloom's: Remember
54
114) Travon's Limo Service provides transportation services in and around Bentonville. Its
profits have been declining, and management is planning to add a package delivery service that
is expected to increase revenue by $275,000 per year. The total cost to lease additional delivery
vehicles from the local dealer is $60,000 per year. The present manager will continue to
supervise all services. However, labor and utilities costs will increase by 40% and rent and other
costs will increase by 15% when the package delivery service is added.
a. Prepare a report of the differential costs and revenues if the delivery service is added.
b. Should management start up the delivery service? Explain your answer.
Answer:
a.
Travon's Limo Service
Income Statement
Status Quo No Alternative: With
Delivery Service Delivery Service Difference
(1) (2) (3)
Sales Revenue $ 960,000 $ 1,235,000 $ 275,000
Costs:
Vehicle leases 400,000 460,000 60,000
Labor 290,000 406,000 116,000
Utilities 50,000 70,000 20,000
Rent 100,000 115,000 15,000
Other Costs 60,000 69,000 9,000
Manager's Salary 120,000 120,000 0
Total Costs $ 1,020,000 $ 1,240,000 $ 220,000
Operating Profit
$ (60,000) $ (5,000) $ 55,000
(Loss)
55
b.
The decision to expand and offer the delivery service results in differential profits of $55,000, so
it is profitable to expand. Note that only differential costs and revenues figured in the decision.
The manager's salary did not change, so it was not included.
Difficulty: 3 Hard
Bloom's: Analyze
56
115) Morris Inc. is a management consulting firm that specializes in management training
programs. Tackle Manufacturing Inc. has approached Morris to contract for management
training for a one-year period. Last year's income statement for Morris is as follows:
Sales Revenue $ 360,000

Costs:
Labor $ 120,000
Equipment Lease 12,000
Rent 24,000
Utilities 8,400
Supplies 23,600
Other Costs 14,400
Manager's Salary 80,000
Total Costs 282,400
Operating Profit (Loss) $ 77,600
To satisfy the Tackle contract, another part-time trainer will need to be hired at $42,000.
Supplies will increase by 12% and other costs will increase by 15%. In addition, new equipment
will need to be leased at a cost of $2,500.
a. What are the differential costs that would be incurred if the Tackle contract is signed?
b. If Tackle will pay $55,000 for one year, should Morris accept the contract? Explain your
answer.
Answer: a.
Differential costs incurred if the contract is signed:
(a) Differential Costs

Trainer $ 42,000
Supplies 2,832
Other Costs 2,160
New Equipment Lease 2,500
$ 49,492
b.
Differential revenues of $55,000 will exceed the differential costs of $49,492. As a result, Morris
will earn an additional $5,508 in operating profit if it accepts the contract.
Difficulty: 3 Hard
Bloom's: Analyze
57
116) The Arielle Company reported the following results for the manufacture and sale of one of
its products known as Controllers during the most recent year.
Sales (6,500 Controllers at $130 each) $ 845,000

Cost of sales 390,000
Distribution costs 65,000
Advertising expense 275,000
Salaries 25,000
Building costs 145,000
Operating loss $ (55,000)
The Arielle Company is trying to determine whether or not to discontinue the manufacture and
sale of Controllers. The operating results reported above for last year are expected to continue in
the foreseeable future if the product is not dropped. The building costs represent the costs of
production facilities and equipment that the Controllers product shares with other products
produced by Arielle. If the Controllers product were dropped, there would be no change in the
building costs of the company. Management has determined that discontinuing the manufacture
and sale of Controllers will have no effect on the company's other product lines. Determine the
change in operating profits that will happen if the manufacture and sale of Controllers is
discontinued.
Answer: Although the company's net operating profits would seem to increase by $55,000 if
the manufacture and sale of Controllers were discontinued, the building costs, which amount to
$145,000, would continue regardless. As a result, operating profits will actually decrease if the
manufacture and sale of Controllers is discontinued as shown below. (Note that the decrease in
revenues that would result will decrease operating profits and, as such, it is shown as a negative
number below. The cost savings listed below would increase operating profits, which is why
these amounts are shown as positive amounts below.)
Sales (6,500 Controllers at $130 each) $ (845,000)

Cost of sales 390,000
Distribution costs 65,000
Advertising expense 275,000
Salaries 25,000
Increase (decrease) in operating profits $ (90,000)
Difficulty: 3 Hard
Bloom's: Analyze
58
117) The management of Parachute Corporation is considering dropping product ABC123. Data
from the company's accounting system appear below:
Sales $ 260,000
Cost of goods sold 125,000
Building expenses 88,000
Selling and administrative expenses 75,000
All building expenses of the company are fully allocated to products in the company's
accounting system. Further investigation has revealed that $42,000 of the building expenses and
$48,000 of the selling and administrative expenses will not be incurred if product ABC123 is
discontinued.
a. According to the company's accounting system, what are the operating profits earned by
product ABC123?
b. What would be the impact on the company's overall operating profits if product ABC123 is
dropped? Should the product be dropped?
Answer:
a.
Operating profits (losses) earned by product ABC123:
Sales $ 260,000
Operating profits (losses) $ (28,000)
b.
Impact on company's overall operating profits if product ABC123 is dropped:
Sales $ (260,000)
Building expenses ($88,000 − $46,000) 42,000
Selling and administrative expenses ($75,000 − $27,000) 48,000
Overall operating profits would decrease by $45,000 if product ABC123 were dropped.
Therefore, the product should not be dropped.
Difficulty: 3 Hard
Bloom's: Analyze
59
118) The management of Marvel Corporation has been concerned for some time with the
financial performance of its product EX123 and has considered discontinuing it on several
occasions. Data from the company's accounting system appear below:
Sales $ 650,000
Cost of goods sold $ 293,000
Building expenses $ 221,000
Selling and administrative expenses $ 150,000
In the company's accounting system all building expenses of the company are fully allocated to
products. Further investigation has revealed that $95,000 of the building expenses and $85,000
of the selling and administrative expenses will not be incurred if product EX123 is discontinued.
a. According to the company's accounting system, what are the operating profits (losses) earned
by product EX123?
b. What would be the effect on the company's overall operating profits if product EX123 is
dropped?
Answer:
a.
Operating profits (losses) earned by product EX123:
Sales $ 650,000
Operating profits (losses) $ (14,000)
b.
Impact on company's overall operating profits if product EX123 is dropped:
Sales $ (650,000)
Overall operating profits would decrease by $177,000 if product EX123 were dropped.
Therefore, the product should not be dropped.
Difficulty: 3 Hard
Bloom's: Analyze
60
119) Place the letter of the appropriate element of an organization's value chain in Column 2 in
the blank next to each operation in Column 1.
Column 1 Column 2
Research and
Macy's replies to customers' questions on merchandise A. Development
Updating PetSmart's electronic Internet catalogue of
chew bones and leash merchandise. B. Design
Development of new software applications at Apple. C. Production
Contracting with United Parcel Services to ship
computers to customers at Best Buy D. Marketing
Writing of software programs at QuickBook's
Professional Accountant Division. E. Distribution
Customer
Creation of new movie ideas at Universal Studios. F. Service
Answer:
Column 1 Column 2
Research and
F Macy's replies to customers' questions on merchandise A. Development
Updating PetSmart's electronic Internet catalogue of
D chew bones and leash merchandise. B. Design
B Development of new software applications at Apple. C. Production
Contracting with United Parcel Services to ship
E computers to customers at Best Buy D. Marketing
Writing of software programs at QuickBook's
C Professional Accountant Division. E. Distribution
Customer
A Creation of new movie ideas at Universal Studios. F. Service
Bloom's: Understand
61
120) Old-Fashion Flavors is a local ice cream shop. The company currently is showing an
operating loss, as evidenced by the income statement below:
Sales $ 75,000
Costs:
Food supplies 20,000
Labor 16,000
Utilities 4,000
Rent 12,000
Other 4,000
Manager's salary 25,000
Total Costs 81,000
Operating Profits (Losses) $ (6,000)
The President of the company is considering adding sandwiches to the menu. Sales will be
expected to increase by $60,000. The cost of sandwich supplies would be $30,000. Labor costs
would increase 40% and other costs 10%. The current manager will continue to manage the
operation.
a. Prepare a quantitative analysis of the decision to add sandwiches to the menu.

b. What qualitative considerations should the company consider in this decision?
Answer:
a.
Alternative:
Status Quo Add Sandwiches Difference
Sales $ 75,000 $ 135,000 $ 60,000
Costs:
Food supplies 20,000 50,000 30,000
Labor 16,000 22,400 6,400
Utilities 4,000 4,000 0
Rent 12,000 12,000 0
Other 4,000 4,400 400
Manager's salary 25,000 25,000 0
Total Costs 81,000 117,800 36,800
Operating Profits
$ (6,000) $ 17,200 $ 23,200
(Losses)
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b.
Qualitative considerations should include the impact on the current manager's morale with the
large increase in responsibility, the ability of the company to successfully integrate the new
menu and the response of customers to the addition of sandwiches in an ice cream shop.
Difficulty: 3 Hard
Bloom's: Analyze
63
121) The Brogan family currently lives in a suburb of a major city. They have a lovely home
close to major routes of transportation. Both Mr. and Mrs. Brogan have convenient commutes of
30 minutes or less. Because the school system in their town does not have a quality reputation,
they currently send their daughter to private school, conveniently located less than one mile from
their home. The family's current monthly living expenses are listed below:
Monthly
Budget
Mortgage, including taxes and insurance $ 5,000
Other utilities, including water, heat and telephone 500
Costs of running automobiles 800
Cost of private school 2,000
Total monthly budget $ 8,300
The Brogans are considering moving to a town approximately 20 minutes away. Because of the
desirability of the local schools and strict zoning, housing is very expensive in this town. Their
daughter would attend public schools. The Brogans estimate that their monthly mortgage, taxes
and insurance would increase to $7,000 per month, while the cost of running automobiles would
increase 20% and other utilities 10%. Mortgage interest costs are tax deductible and the Brogans
are in the 25% tax bracket. Assume that $700 of the increase in their monthly budget is for
mortgage interest. What are the costs and benefits of moving? Which can be quantified and
which cannot?
Answer: The Brogans should recognize that their total household expenses will not increase
significantly. The increased mortgage will be offset by the savings on private school. In addition,
since the mortgage is tax deductible and the school is not, the savings in taxes will just about
offset the increased monthly costs:
Additional mortgage cost $ 2,000

Private school savings (2,000)
Tax savings ($700 × 25%) (175)
Increased auto cost ($800 × 20%) 160
Increased utilities ($500 × 10%) 50
Net Increase (decrease) $ 35
Other costs and benefits are not measurable. The Brogans are assuming that their daughter will
receive the same quality of education in the public school. Commuting time will increase by 40
minutes per day for both Mr. and Mrs. Brogan. The convenience of being located very close to a
major route of transportation will no longer be theirs.
Difficulty: 3 Hard
Bloom's: Analyze
64
122) Place the letter of the appropriate business function of the value chain in Column 2 in the
blank next to each cost item in Column 1.
Column 1 Column 2
Research and
Cost of customer order forms A Development
Cost of paper used in manufacture of books B Design
Cost of paper used in packing cartons to ship books C Production
Cost of paper used in display at national trade show D Marketing
Depreciation of trucks used to transport books to college
bookstores E Distribution
Cost of the wood used to manufacture paper F Customer Service
Salary of the scientists attempting to find another source
of printing ink
Cost of defining the book size so that a standard-sized
box is filled to capacity
Answer:
Column 1 Column 2
Research and
D cost of customer order forms A Development
C cost of paper used in manufacture of books B Design
E cost of paper used in packing cartons to ship books C Production
D cost of paper used in display at national trade show D Marketing
depreciation of trucks used to transport books to
E college bookstores E Distribution
C cost of the wood used to manufacture paper F Customer Service
salary of the scientists attempting to find another
A source of printing ink
cost of defining the book size so that a
B standard-sized box is filled to capacity
Bloom's: Understand
65
123) Morgantown Manufacturing produces electronic storage devices and uses the following
three-part classification for its manufacturing costs: materials, labor, and support costs. Total
support costs for June were $300 million and were allocated to each product on the basis of labor
costs of each line. Summary data (in millions) for June for the most popular electronic storage
device, the Giant Watt, was:
Material costs $ 9,000,000

Labor costs $ 3,000,000
Support costs $ 8,500,000
Units produced 40,000
a. Compute the manufacturing cost per unit for each Giant Watt produced in June.
b. Suppose production will be reduced to 30,000 units in July. Speculate as to whether the unit
costs in July will most likely be higher or lower than unit costs in June; it is not necessary to
calculate the exact July unit cost. Briefly explain your reasoning.
Answer:
a.
Unit costs for June were:
($9,000,000 + $3,000,000 + $8,500,000) ÷ 40,000 = $512.50 per unit
b.
Unit costs should be higher in July if only 30,000 units are to be produced. Indirect
manufacturing costs most likely include both fixed and variable components. Since fewer units
are expected to be produced in July, total fixed costs will be spread over fewer units. This will
result in an increase in total cost per unit since variable costs per unit will most likely not change
with the decreased production.
Difficulty: 3 Hard
Bloom's: Analyze
66
124) The list of representative cost drivers in the right column below are randomized with
respect to the list of functions in the left column. That is, they do not match.
Function Representative Cost Driver

Purchasing A. Number of employees
Billing B. Number of shipments
Shipping C. Number of customers
Computer Support D. Number of invoices
Personnel E. Number of desktop computers
Customer Service F. Number of purchase orders
Required:
Match each business function with its representative cost driver.
Function Insert letter of appropriate driver (A through F)

1. Purchasing
2. Billing
3. Shipping
4. Computer Support
5. Personnel
6. Customer Service
Answer:
Function Insert letter of appropriate driver (A through F)
1. Purchasing F
2. Billing D
3. Shipping B
4. Computer Support E
5. Personnel A
6. Customer Service C
Difficulty: 1 Easy
Bloom's: Remember
67
125) A restaurant is deciding whether it wants to update its image or not. It currently has a cozy
appeal with an outdated décor that is still in good condition, menus and carpet that need to be
replaced anyway, and loyal customers. Identify the following for the restaurant management:
a. Costs that are relevant to this decision.

b. Costs that would not be differential to this decision.
c. Any qualitative factors that should be considered.
Answer: For the decision of whether to update the restaurant's image:
a. Relevant costs include a one-time cost of the renovation for the updated image, and a change
in future sales which includes an increase in sales due to the updated image, decrease in sales due
to loss of that cozy appeal, and loss of sales due to being closed or having a limited serving area
during renovation.
b. Costs that are not differential include replacing the menus and the carpet since they need to be
replaced whether the image is updated or not.
c. Qualitative considerations include whether the restaurant will lose that cozy appeal it currently
has, if the restaurant needs to be closed for renovations it may result in loss of customers, and
new customers may not be the type of customer they want to attract.
Difficulty: 3 Hard
Bloom's: Analyze
68
126) You have been employed as an entry-level management accountant for a little under a year.
You suspect that your immediate supervisor is involved in a significant fraud involving diverting
company assets to personal use. Briefly describe the steps you might take to resolve this
dilemma.
Answer: The management accountant should first consult any internal company procedures
concerning the resolution of ethical issues, and make sure these procedures are followed as
closely as possible. At the same time, the management accountant should make sure that the
facts are accurate and are not based on rumors or inaccurate information. If these policies do not
resolve the situation, the management accountant should:
∙ DISCUSS the conflict with your immediate superior or, if the conflict involves your superior,
the next level in authority. This might require contacting the board of directors or an appropriate
committee of the board, such as the audit committee or the executive committee;
∙ CLARIFY the relevant issues and concepts by discussions with a disinterested party or by
contacting an appropriate and confidential ethics "hotline";
∙ CONSULT your attorney about your rights and obligations.
Difficulty: 3 Hard
Bloom's: Analyze
AACSB: Ethics
127) Snacking Macs, Inc., currently manufactures three different types of scientifically balanced
dog food. The firm is considering eliminating one of the three products. What factors should be
taken into account in making this decision?
Answer: In deciding whether or not to eliminate a product, the firm should determine if costs
that can be eliminated will exceed the revenues that will be lost. The firm needs to classify the
costs into those costs which will be eliminated and therefore are relevant, and which costs will
continue even if the product is deleted. Costs that often continue are those costs which have been
allocated rather than incurred directly by the product. The firm must also look to see if any other
products may be harmed by the elimination of the product. Maybe the products are complements,
and loss of one sale will result in loss of another. The firm should consider whether another
product's sales might increase if the product is deleted, which could be an opportunity to earn
more contribution from another area. Can the firm use the space freed up for some other purpose
that could generate additional inflows, which is an opportunity cost? The firm must also look at
how its reputation among its customers for selling a full line of products might be damaged as a
result of this decision.
Difficulty: 3 Hard
Bloom's: Evaluate
69
128) Clancy Mining Company mines iron ore for production into various metal products. During
recent years, the company had large fluctuations in its inventories of metal ingots. Much of the
volatility of the inventory levels is due to the variability of demand by the company's largest
customers, automobile manufacturers. For large orders, the company has the technology to
quickly shift production from one product to another. Explain how the company can improve its
inventory control system and give the advantages of whatever you recommend.
Answer: The company can probably benefit from changing to a just-in-time system for
inventory control. This would allow the company to be responsive to actual needs rather than
finished goods inventory building. The advantages would be:
1. Lower inventory requirements;

2. Reductions in carrying and handling costs of inventories;
3. Reduction in risks of obsolete inventories;
4. Reduction in total manufacturing costs; and
5. Reductions in paperwork.
Difficulty: 3 Hard
Bloom's: Evaluate
70
129) MegaStores is a large, publicly-held corporation. The company does about 80% of its work
in government contracts. All contracts use a cost plus fixed fee basis; costs of jobs are agreed
upon by contract. Any overruns will result in losses to the company. The company controller,
Ricky Bowers CPA, CMA, is discussing two current jobs with the Job Supervisor, Leslie Dawn.
Job 100 is currently coming in under budget, but due to construction problems, Job 102 is 20%
over budget. Bowers is considering the possibility of having employees who work on Job 102
record their time to Job 101. What are the implications of this decision?
Answer: This is clearly an unethical practice. Since the contract price is a legally binding
document, MegaStores would first be violating a legal arrangement with the government. The
company could be held liable for the excess charges. This could result in fines, interest and
punitive damages; criminal and civil charges could be levied against the employees knowingly
involved in these practices. The practice also misleads managers who rely on accurate cost
information for pricing, cost control and other decisions. If the jobs are cost plus fixed fee, the
client is paying more than he should for the work. In fact, a government indictment could have
ramifications of future lost business, not only with the government, but also other potential
customers. In addition, Ricky and Leslie could be faced with the loss of their jobs and
reputations. As a CPA, Ricky could further lose his professional certification by violating the
Code of Ethics of the American Institute of CPAs.
Difficulty: 3 Hard
Bloom's: Evaluate
AACSB: Ethics
71
130) The owner of a small retail business asks, "Why do I need cost accountants? My CPA
produces financial statements, which are sufficient for me to discover my costs. Look at my
Income Statement. I expect sales to increase by 10% next year, so I am planning on a 10%
increase in profits. I don't need a cost accountant to tell me that."
Income Statement for the Year

Ending December 31
Cost of Goods Sold 296,348
Gross Margin 160,886
Selling Costs 76,234
Administrative Costs 62,350
Profit before Taxes $ 22,302
Use your knowledge of the concept of differential costs and explain why a cost accountant would
question the conclusion that a 10% increase in sales would yield a 10% increase in profit.
Answer: The primary purpose of this exercise is to challenge students to think beyond the
material presented in the chapter and to write/justify their responses. Answers will vary in depth
and breadth but should mention the change in costs may not be linear, some costs are certainly
fixed and others are variable, and the above changes are based on estimates of changes in the
cost drivers.
Difficulty: 3 Hard
Bloom's: Analyze
131) Create a diagram of the value chain by putting the following components into the correct
order: a) purchasing; b) marketing and sales; c) research and development; d) customer service;
e) distribution; f) design; g) production.
Answer: c) research and development → f) design → a) purchasing → g) production → b)

marketing and sales → e) distribution → d) customer service
Difficulty: 3 Hard
Bloom's: Understand
72
132) Explain the difference between a value chain, a supply chain, and a distribution chain.
Answer: The value chain is the set of activities that expand the entire transformation process
from raw resources into goods or services purchased and consumed by the end users. The supply
chain is the set of firms and individuals that sells goods and services to a firm. The supply chain
is an input for a firm. The distribution chain is the set of firms or individuals that buy and
distribute the goods from the firm. The distribution chain is the output from a firm.
Bloom's: Analyze
133) Compare financial accounting and cost accounting using the following concepts: users of
the information; important criteria; who establishes or defines the system; and how to determine
an accounting treatment.
Answer:
Concepts Financial accounting Cost accounting
External: investors,
Users of the information Internal: managers
creditors, owners
Comparability, decision Decision relevance for
Important criteria
relevance for investors managers, timeliness
Who establishes or External standard-setting
Managers
defines the system group
How to determine an Relevance for decision
Standards and rules
accounting treatment making
Difficulty: 3 Hard
Bloom's: Analyze
73
134) The IMA Code of Ethics describes three basic steps a cost accountant should take when
faced with an ethical conflict: Discuss, clarify, and consult. Describe each of these three steps.
Answer: Discuss the conflict with your immediate supervisor or, if the immediate supervisor is
involved, the next level in authority.
Clarify the relevant issues and concepts by discussions with a disinterested party.
Consult with an attorney about your rights and obligations.
Bloom's: Understand
AACSB: Ethics
135) Respond to this comment: "Since cost accountants just prepare accounting data for internal
management, cost accountants do not need to be concerned with GAAP or IFRS."
Answer: Although internal accounting is concerned with decision relevance for managers, the
cost accountant still needs to be informed as to the GAAP/IFRS concepts regarding recording
and measuring of costs.
Difficulty: 3 Hard
Bloom's: Apply
74
136) What are characteristics of information used in decision making?
Answer: Information used in decision making must be relevant, accurate, timely, and it may be
qualitative in nature. Relevant information is pertinent to a decision, i.e., it will make a
difference in the decision being made. Because different managerial problems usually require
different data, a difficulty is deciding what information is relevant to the situation under review.
Information used in decision making must also be accurate or it will be of little use. Accurate
information is precise. If cost information is imprecise because of incorrect calculations or
incomplete records, the information will not be very useful. But, the information must also be
relevant. Highly accurate but irrelevant data are of no value to the decision-maker.
Relevant and accurate information is of value only if it is timely, that is, available in time to
make a decision. In an ideal world, the best information will be relevant, accurate, and timely.
However, rarely does an organization operates in an ideal environment and some compromise
may be needed — particularly between accuracy and timeliness. More accurate information will
take longer to produce. There is an inverse relationship between accuracy and timeliness, and the
two characteristics must be balanced as to determine what is acceptable.
Decision making also involves qualitative characteristics, which are the factors in a decision
problem that cannot be expressed in numerical terms. Examples could include poor employee
morale, the loss of control that occurs if certain processes are outsourced, and the harm done to
an organization if a manager places his or her own goals over the goals of the organization.
Quantitative analysis can be used to determine the cost of qualitative factors. Weighing the
quantitative and qualitative factors in making decisions is the essence of management.
Difficulty: 3 Hard
Bloom's: Apply
AACSB: Analytical Thinking; Reflective Thinking
75
137) The Flamboyant Flirt is a small but prosperous hair cutting salon. Diane Stock, the manager
of the salon, has been asked by several clients if she will ever offer other "hair related" services
(e.g., perm, dye, etc.). After careful thought, Ms. Stock is considering expanding her offerings.
However, in order to do so, she will have to hire one additional stylist at a salary of $26,000 per
year. Other expenses will increase as follows: rent by 20%, supplies and utilities by 25%, and
miscellaneous expenses by 10%. Her revenues from additional services are likely to be $55,000
for the next year (i.e., 2021). The Flamboyant Flirt's income statement for the most recent year is
presented below.
The Flamboyant Flirt

Income Statement for the Year Ended December 2020
Costs:
Labor $ 52,000
Utilities 12,000
Supplies 45,000
Rent 18,000
Miscellaneous 5,000
Manager's Salary 30,000 162,000
Operating Profits $ 58,000
a. Based on your financial analysis, should Diane Stock go ahead with the expansion?
b. What other factors must Ms. Stock consider before making a final decision?
Answer:
a.
The financial implications of expanding the services offered by The Flamboyant Flirt are as
follows:
The Flamboyant Flirt

Income Statement for the Year Ended December 2021
Alternative:
Status Quo Expand Difference
Sales Revenue $ 220,000 $ 275,000 $ 55,000
Costs:
Labor $ 52,000 78,000 $ 26,000
Utilities (25% of $12,000) 12,000 15,000 3,000
Supplies (25% of $45,000) 45,000 56,250 11,250
Rent (20% of $18,000) 18,000 21,600 3,600
Miscellaneous (10% of
5,000 5,500 500
$5,000)
Manager's Salary 30,000 30,000 0
Operating Profits $ 58,000 $ 68,650 $ 10,650
76
Based on the financial analysis, Diane Stock should go ahead with the expansion because her
profits will increase by $10,650 or 18.4%. However, the assumption underlying her decision is
that she considers the estimates to be reliable.
b.
Other factors that Ms. Stock might consider are as follows:
∙ Expansion of the business may bring in new customers who may ask for a haircut in addition to
other services. This will increase revenues from hair cutting also. Expansion may also take away
some customers who liked the small size of the salon (provides a more relaxed feeling.)
∙ Offering a variety of services will allow Ms. Stock to quote package prices on different
combinations of services.
∙ Ms. Stock will have more responsibilities in overseeing the expansion, additional employees
and more customers reducing the quality and quantity of personal time available.
Difficulty: 3 Hard
Bloom's: Evaluate
77
138) The manager of a profit center of a large electronics manufacturing corporation made some
projections regarding sales and profits for the upcoming fourth quarter of the year. The
managers' performance evaluation and compensation depended significantly on his ability to
meet budget goals. The manager discovered that the fourth quarter would have to be a
particularly good quarter in order to meet these goals. He decided to implement a sales program
offering liberal payment terms in order to pull some sales that would normally occur next year
into the current year. Customers accepting delivery in the fourth quarter would not have to pay
the invoice for 140 days. Also, he sold some equipment that was not being used and realized a
significant profit on the sale.
Are these actions ethical? Why or why not?
Answer: Each of the manager's actions needs to be considered separately:
∙ Liberal credit terms - Acceptable, a business strategy that should be judged on how it affects the
firm's operations and profits.
∙ Attempt to pull sales from one period to another - may not be acceptable. If the purpose of the
change in credit terms is simply to move sales from one period to another, then the result is
misleading financial reports and fraudulent; if the objective is to increase sales through
management of credit policies, then acceptable.
∙ Sale of equipment - may be acceptable, a business decision that should be judged on how it
affects the firm's operations and profits; may not be acceptable if done just to show a short-term
gain that would improve current period profit.
Difficulty: 3 Hard
Bloom's: Evaluate
AACSB: Ethics
78
139) The controller of one division of IntroTel, a large diversified firm is compensated by salary
plus bonus. The bonus is a significant part of total compensation and is based directly on the
profits of the division. Thus, the controller has an incentive to find ways to increase profits,
including the delay of discretionary expenses such as research and development, delay of
maintenance and repair of manufacturing equipment, and delay of sales promotions.
Is finding ways to increase profits as described above unethical? Why or why not? Who is to
blame, if anyone?
Answer: Since the actions contemplated by the controller are not in the best interests of the
company, these actions are probably not ethical, and are in conflict with the ethical standard of
integrity. The situation displays both conflict of interests and an attempt to subvert the firm's
performance incentive system.
Probably both the incentive system and the controller are to blame in this case. While it is not
reasonable to expect that the firm can design a bias-free incentive system, it appears that the firm
has not done an acceptable job of developing a system that will reward performance based upon
the firm's critical success factors, instead of short-term profits only. Improvements in the
incentive scheme are possible and necessary. On the other hand, the controller cannot be excused
by taking advantage of the opportunity to manipulate profits. The standards are clear on the
required professional behavior in this case, and the controller has ignored them for self-serving
purposes.
Difficulty: 3 Hard
Bloom's: Evaluate
AACSB: Ethics
79
140) Dockside Sandal Company, a manufacturer of women's sandals, recently implemented a
quality improvement program aimed at streamlining the manufacturing process. Bo Mattison,
industrial engineer and a resident expert on process improvement, was assigned the task of
implementing the program.
Mattison's first task was to educate all the employees involved with the production process. He
sent a memo to representatives in product design and development, materials management
(including purchasing), marketing, distribution, customer service and accounting, in addition to
those in the production department, inviting them to attend an information session on the
improvement program.
He began the meeting by thanking all those who were present (over 35 in number) and spent the
first hour explaining the need for such a program. Soon after, the attendees were engaged in a
discussion. Several questions were raised during the discussion. Among these, three questions
stood out.
1. What is the need for including members from design, marketing, and other functional areas
when the improvement program's focus is on streamlining the manufacturing process?
2. What is the role of the cost management expert in this program?
3. Finally, why should the machine operators be involved, as they are not engineers?
Consider the three questions that stood out in the discussion. Assume the role of Bo Mattison and
prepare a response addressing the questions.
Answer:
1. A process improvement program typically cuts across departmental boundaries by extending
through most of the components of the value chain of a company. It is important to recognize
that decisions made in the upstream activities such as product design and development affect
downstream activities (i.e., manufacturing, distribution and customer service). Individuals from
these downstream functions can make design engineers aware of the implications of design
decisions on their respective activities. For example, the production engineer can inform the
design engineer that certain designs are more compatible with the existing assembly line than
others (the latter will cost more to produce). Therefore, the inclusion of individuals from
different functional areas is to educate and inform each other.
2. The cost management expert assumes a very significant role in a process improvement
program by providing cost-benefit information pertaining to different improvement initiatives.
Once again, this activity adds value to the process improvement program because the cost
manager can identify the cost implications of upstream activities on the downstream activities.
For example, a product designed with common parts simplifies the purchasing activity,
production activity and customer service activity (if and when required, e.g., repairs are easy).
80
3. The involvement of machine operators in such an improvement initiative is critical because
the operator is closest to the process and therefore is likely to be very knowledgeable about how
the process works. Consequently, the operator can visualize problems and point them out to other
individuals in the team. Many operators might also be in a position to offer suggestions for
improvements. The involvement of operators in improvement teams is becoming more common
in the modern business environment.
Difficulty: 3 Hard
Topic: Value Creation in Organizations; Trends in Cost Accounting throughout the Value
Chain
value in organizations.; 01-04 Identify current trends in cost accounting.
Bloom's: Create
81
141) Megan Kris, the Vice-President for Human Resources in Learning, Inc. was concerned
about a recent memo she had recently received from the CEO's office regarding the possibility of
outsourcing the payroll function to Salary Experts, a growing provider of a variety of human
resource services. She was shocked that the CEO's office had discussed this matter with the
Board of Directors but failed to consult her.
Megan was preparing for a meeting with the CEO. In reading the memo and its attachments,
Megan observed the following comparison of costs in a report prepared by the controller's office:
Payroll department expenses:

Salaries of employees $ 210,000
Share of utilities 75,000
Share of building rent 39,350
Computers and supplies 26,000
Other department expenses 20,000
Total annual expenses $ 439,350
Megan also noted that Salary Experts quoted a fixed fee of $125,000 and variable processing
costs of $7.50 per employee transaction. She did not believe that the company will actually save
money by outsourcing the payroll function. For one, she did not think that the company will
actually save all of the above-mentioned amounts. She knew that the payroll department manager
could not be removed from the company because he had to oversee the payroll function and
serve as a liaison with the outside company. However, all other employees in the department
would likely not be required.
a. Assume Learning Inc. has 14,000 employees on its payroll. Can the company save money by
outsourcing the payroll function?
b. What are the pros and cons of outsourcing the payroll function?
Answer:
a.
Outsourcing the payroll function will involve an out-of pocket expense of $230,000 [$125,000 +
($7.50 × 14,000)]. Moreover, some of the payroll department's costs will continue to be incurred
by the company:
Utilities $ 75,000
Rent 39,350
$ 183,350
The total cost associated with outsourcing the function will be $413,350 compared to $439,350 if
the payroll function is not outsourced. Therefore, Learning, Inc. can save exactly $26,000 by
outsourcing the payroll function. More money might be saved if there are savings in utilities. A
portion of the unavoidable costs could also be recovered if this space is sublet or put to
productive use in some other manner.
82
b.
Several considerations must be made before deciding to outsource the payroll function.
∙ Efficiency of the outside party vis-a-vis carrying out the function internally.
∙ In some cases, it may be worthwhile to outsource certain activities.
∙ Employee morale due to layoffs (with possible implications on the reputation of the company).
∙ Possibility of outsourcing other functions and their repercussions on employees.
∙ Sensitivity of the nature of the information being handled by individuals external to the
organization.
Difficulty: 3 Hard
Bloom's: Evaluate
142) Mr. Lee is the purchasing manager of Cathy Company. It is the beginning of the year and
he storms into the controller's department, clutching a memo from the controller. "Why am I
being asked to analyze our products, services, and activities when we just did a comprehensive
benchmarking study one year ago?”
Briefly explain why the controller would want Mr. Lee to complete benchmarking analysis again
in the current year.
Answer: Using benchmarking methods, managers measure a company’s own products,

services, and activities against the best level of performance that can be found either inside or
outside the manager’s own organization. To support continual improvement, benchmarking
should not be treated as a one-time event but as an ongoing process.
Difficulty: 3 Hard
Bloom's: Analyze
AACSB: Analytical Thinking; Reflective Thinking
143) Adair Company has been busy over the first few years of its existence in penetrating its
market and gaining a respectable market share. To facilitate this, Mr. Adair, the CEO, and his
controller, Mr. Brown, have been developing the annual master budgets. To date this approach
has worked well.
Adair has been acquired by a company in a related business but will continue to operate as an
independent subsidiary. The CFO of the acquiring company, Mr. Horwitz, has suggested to Mr.
Adair that, since it was expected that his company would continue to grow, it adopts a
departmental budgeting system; a suggestion Mr. Adair agreed to readily. Mr. Horwitz explained
to Adair's departmental managers the concepts of a departmental participative budgeting system
and their involvement. The managers were encouraged to take the information and come back
83
with suggestions which could then be put into a formal budget process.
a. What benefits will accrue to Adair under this new budgeting system?
b. What behavioral issues might arise for departmental managers and for production workers?
c. What is the most probable long-term reaction of Adair's people to the participative budget
system?
Answer:
a. There will be improved communication and coordination between departments; problems
might be identified sooner since the managers are closer to the action; and accountability and
performance evaluation should be easier to do.
b. Departmental managers will face some positive points in that they are more likely to be
motivated to work with a budget they had a hand in developing. They also should accept the
results of the performance evaluation and accountability more readily. Unfortunately, there may
be tendencies to pad the budget before the fact or manipulate the figures after the fact in order to
look better for the evaluation, especially if there are monetary rewards involved. Production
workers will have some similar reactions depending on the degree of their involvement in the
process. If they consider the budget fair, they will work with it; if not, they might sabotage it.
c. If there is a perception that the process has worked well, all involved will be motivated to
continue with the process. If there is a feeling that things have not worked well or evaluations
have been unfair, they will not work with the process.
Difficulty: 3 Hard
Bloom's: Analyze
84
144) How can activity-based costing aid in the design phase of product development?
Answer: Product designers must write detailed specifications on a product’s design and
manufacture. The design of a product can have a significant impact on the cost to manufacture it.
Designs that are complex might add additional functions which may require complex and
expensive manufacturing processes. Design for manufacturing is the concept that manufacturing
cost and complexity need to be considered in the design of the product. Cost accountants help
designers understand the trade-off by using methods such as activity-based costing (ABC),
which considers the activities or processes that will be required to bring a product to market.
ABC assigns costs to products based on several different activities, depending on how they drive
costs and, in general, provides more detailed cost information, enabling managers to make more
informed decisions.
Difficulty: 3 Hard
Topic: Value Creation in Organizations; Trends in Cost Accounting throughout the Value
Chain
value in organizations.; 01-04 Identify current trends in cost accounting.
Bloom's: Evaluate
85
145) The New York Times recently reported that a number of publicly-held corporations have
been accused of illegally doctoring hourly employees' time records. Examples included:
∙ Workers sued Family Dollar and Pep Boys, accusing managers of deleting hours from their
time records.
∙ More than a dozen former Walmart employees said in interviews and depositions that managers
had altered time records to shortchange employees.
∙ The Department of Labor reached two back-pay settlements with Kinko's photocopy centers
after finding that managers had erased time for 13 employees.
When interviewed, many of the managers cited pressure from upper-management and the impact
of their actions on their own compensation as underlying causes for their actions. All of the
companies strongly denied encouraging such illegal and unethical behavior by managers.
Compensation experts interviewed agreed that the companies' incentive performance systems
may have contributed to the managers' behavior. (New York Times, April 4, 2004)
a. Explain how the incentive performance systems of the above-named companies could have
contributed to this illegal behavior by managers.
b. Discuss the ethical issues involved in the design of incentive performance systems. In
designing a performance-based incentive system, what measures should companies take to avoid
illegal and unethical behavior by supervisors?
Answer:
a. Incentive performance systems can lead to unethical conduct when managers fear losing their
jobs when they fail to keep costs down. In addition, when a significant part of the managers'
compensation comes from bonuses based on minimizing costs or maximizing profits, managers
may be tempted to underreport labor hours in order to cut payroll costs. Many of the managers
cited pressure from supervisors to erase hours, refuse to pay overtime, and otherwise manipulate
payroll records.
b. Designers of performance-based incentive systems should identify the trade-offs between

effective rewards, goal alignment, monitoring, and cost in designing an effective
performance-based system. It is clear that upper-level management must strongly encourage
ethical behavior by mid-level managers. Some of the possible measures that could be taken are:
∙ Regular written reminders of "payroll integrity" from top management.

∙ Distributing paper time records to employees, so that they can challenge significant
discrepancies in their reported hours.
∙ Establishing an anonymous call-in line for employees to report possible unethical behavior.
Difficulty: 3 Hard
Bloom's: Analyze
AACSB: Analytical Thinking; Ethics
86
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[1178] Ibid., cccxxxi, 7.
[1179] State Papers, Dom., cccxxxiv, 16. Stradling to Nicholas.
[1180] Autobiography of the Rev. Devereux Spratt. London,
1886. It need hardly be said that the jealousies of Christian
princes were a large factor in causing the immunity in which these
barbarian states so long rejoiced. Spratt was captured while
crossing from Cork to Bristol.
[1181] It does not come within the design of this work to
describe the operations of fleets at sea, but, in this instance, I
must venture to question Mr Gardiner’s depreciatory estimate of
William Rainsborow as a commander. Mr Gardiner considers that
such success as was obtained was due neither to Rainsborow’s
skill nor to the efficiency of his men, but to the existence of civil
strife, disorganising what might have been a united opposition,
between the old and new towns of Sallee, situated opposite each
other on the right and left banks of the river Regreb (Hist. of
England, viii, 270). When Rainsborow arrived off Sallee on 24th
March with four ships, he found that they drew too much water to
close in effectually with the town. Instead of wandering off
helplessly to Cadiz and spending his time in ‘shooting and
ostentation,’ as Mansell did to Malaga under adverse
circumstances, Rainsborow, while he sent to England for lighter
vessels, organised a blockade with the boats of his squadron. So
far as I know he was the first of our commanders to recognise—
and almost invent—the possibilities of boat work on a large scale,
in which English seamen afterwards became such adepts, and it
appears rather that his readiness and resource under unexpected
and unfavourable conditions should alone be sufficient to relieve
his memory from the charge of want of skill. That this patrol duty
was no child’s play is shown by the fact that in one night’s work
thirty men were killed and wounded in the boats (John Dunton, A
True Journal of the Sallee Fleet. London, 1637). In June he was
joined by the Providence and Expedition, which made the task
easier; but for the previous three months, riding on a dangerous
lee shore, in a bad anchorage, and exposed to the heavy Atlantic
swell, using the ships by day and the boats by night, he never
relaxed his bulldog grip on the place, in itself a proof of fine
seamanship. That the end came more quickly from the existence
of civil war is very certain, but I think no one who reads Dunton’s
account (he was an officer of the flagship), and Rainsborow’s own
modestly written Journal (State Papers, Dom., ccclxix, 72), can
doubt that the result would eventually have been the same,
seeing that the blockade grew closer day by day until at last every
vessel which attempted to pass in or out was captured or
destroyed. In August, when the enemy were already crushed, two
more ships joined him, and he was then quite strong enough to
have dealt with both the old and new towns, had they been
united, or to have gone on, as he desired to go on, to settle
accounts with Algiers. It should also be remarked that
Rainsborow anticipated Blake in attacking forts with ships, the
Providence being sent in within musket range of the castle and
coming out unscathed from the contest. Looked at from another
point of view, and compared with the French attempts against
Sallee, Rainsborow’s ability and success stand out just as clearly.
In 1624 M. de Razilly was sent down with a squadron, but
permitted himself to be driven off by weather; in 1629 he came
again, and, after lying off the port for three months and
negotiating on equal terms with these savages, had to depart
without having obtained the release of a single French captive. A
surely significant contrast!
That Charles was satisfied with Rainsborow does not, perhaps,
prove much, although he offered him knighthood and did give him
a gold medal and chain and make him captain of the Sovereign, a
post then of high honour. But Northumberland, a very much better
judge was equally well pleased, and in 1639, strongly
recommended him to the burgesses of Aldborough as their
member. Northumberland, not then Lord Admiral, but paramount
in naval affairs, is also entitled to a measure of the credit of
success; for had Rainsborow been dependent on the energy and
intelligence of the Principal Officers of the Navy for the supplies
which enabled him to keep his station he would probably have
fared but badly. And doubtless many of the men who under him
worked with such courage and devotion had formed part of the
demoralised and useless crews who were such objects of scorn
to Wimbledon and his officers before Cadiz in 1625. The only
difference was in the commander.
[1182] State Papers, Dom., cccclix, 8, 60.
[1183] Halliwell’s Royal Letters, II, 277.
[1184] The first Commissioners of the Admiralty acted by
Letters Patent of 20th September 1628. They were Richard, Lord
Weston, Lord Treasurer; Robert, Earl of Lindsey, Great
Chamberlain; William, Earl of Pembroke, Lord Steward; Edward,
Earl of Dorset, Lord Chamberlain to the Queen; Dudley, Viscount
Dorchester, Vice-Chamberlain of the Household; and Sir John
Coke, Secretary of State. Powers were granted to them or any
three of them. Although in modern phrase they are called Lords of
the Admiralty, they were in reality a committee of the Privy
Council, carrying out the instructions of the King and Council, who
retained the power and exercised the control of an eighteenth
century Admiralty Board. A fresh commission was issued on 20th
November 1632, which omitted Lords Pembroke and Dorchester,
and added Lord Cottington, Sir Francis Windebank, and Sir Henry
Vane (the elder). The third and last commission was of 16th
March 1636 to William Juxon, Bishop of London, Lord Treasurer,
Lords Cottington, Lindsey, and Dorset; and Vane, Coke, and
Windebank.
[1185] His patent as Lord Admiral was dated 28th Jan. 1619.
[1186] State Papers, Dom., Charles I, ccxli, 85, 86.
[1187] Add. MSS., 9301, f. 110.
[1188] State Papers, Dom., ccciv, 9.
[1189] State Papers, Dom., Elizabeth, ccxxxvii, f. 138.
[1190] State Papers, Dom., Charles I, ccclxxii, 21.
[1191] Rot. Pat., 5th April 1627.
[1192] It will be remembered that during his treasurership he
helped himself to £3000 from the Chatham Chest, and that the
money was still owing in 1644. After his dismissal from office
Crowe was ambassador of the Levant Company at
Constantinople, and, in 1646, nearly ruined that company by, on
the one hand, quarrelling with the Porte, and on the other
imprisoning the members and agents of the association. When he
returned in 1648 he was sent to the Tower, but seems to have
escaped scatheless.
[1193] Rot. Pat., 11th Feb. 1626 (a renewal of his patent of
James I), and 21st Jan. 1630.
[1194] Rot. Pat., 12th Jan. 1639.
[1195] Ibid.
[1196] Ibid., 19th Dec. 1632.
[1197] Ibid., 26th Sept. 1638.
[1198] By an order of 13th Feb. 1637 no place in the Navy or
Ordnance offices was henceforth to be granted for life, but only
during pleasure. Edisbury’s real name was Wilkinson (see
Hasted, Hist. of Kent, I, 20 note, ed. Drake, London, 1886).
[1199] State Papers, Dom., cxxxv, 37.
[1200] Ibid., clii, 51.
[1201] Add. MSS., 9301, ff. 121, 133.
[1202] Barlow lived to contest the place with Pepys in 1660.
The date of his patent was 16th Feb. 1639.
[1203] State Papers, Dom., clxxiii, 6. Mervyn to Nicholas.
[1204] The Duke of York was ‘declared’ Lord Admiral at a
meeting of the Council on 18th March 1638. There was no patent.
[1205] Rot. Pat., 13th April 1638.
[1206] Add. MSS., 9297, f. 178
[1207] The price of beer at this time was about £1, 10s a tun.
[1208] In 1634 Palmer, the Comptroller, Denis Fleming, Clerk of
the Acts, Phineas Pett, another Principal Officer, and several
storekeepers and masters attendant had all been suspended for
selling government stores for their own profit.
[1209] State Papers, Dom., cccliii, f. 88.
[1210] State Papers, Dom., cccliii, f. 55.
[1211] State Papers, Dom., xiii, 70, (1625), i.e., by the system
of servants and apprentices. It was not until 1647 that the
shipkeepers in the Medway were ordered to strike the bell on
board every half-hour through the night (Add. MSS., 9306, f. 103).
[1212] State Papers, Dom., cclviii, 30.
[1213] Discourse of the Navy, (Add. MSS., 9335).
[1214] Discourse of the Navy (Add. MSS., 9335).
[1215] State Papers, Dom., xxvii, 69.
[1216] Ibid., cli, 33.
[1217] Ibid., cclx, 29. Edisbury to Nicholas.
[1218] Ibid., cclxiii, 19.
[1219] Add. MSS., 9306, f. 119.
[1220] State Papers, Dom., xxiii, 120; 1626. Ten years later
Northumberland still complained about this. There had been no
reform.
[1221] State Papers, Dom., cccclxxx, 36.
[1222] Ibid., ccccxxix, 33.
[1223] It must not, however, be supposed that naval morality
was worse during the reigns of James and Charles than
subsequently. Leaving the eighteenth century out of consideration
it was said that at the beginning of this one the annual public loss
from fraud and embezzlement ran into millions, a sum which may
well have almost drawn the shades of Mansell and hundreds of
other pettifogging seventeenth century navy thieves back to earth.
The great difference was that at the later date, whether from
higher principle or stricter discipline, the combatant branches of
the service were honest, the theft and jobbery being confined to
the Admiralty, Navy and Victualling Boards, and dockyard
establishments. Lord St Vincent said of the Navy Board that it was
‘the curse of the Navy,’ and the methods of the dockyards may be
gauged from the fact that while the (present) Victory cost £97,400
to build, £143,600 were in fifteen years expended on her repairs.
Of the Admiralty there will be much to be said.
[1224] State Papers, Dom., ccxxix, 114.
[1225] Ibid., ccxlv, 19.
[1226] State Papers, Dom., cviii, 18.
[1227] Ibid., ccxxvii, 1.
[1228] Ibid., cclxix, 67.
[1229] Ibid., ccclxxvi, 160 and ccccxlii, 12. Cf. supra, p. 239.
[1230] Ibid., cccxcvii, 37.
[1231] State Papers, Dom., cccclxxvi, 115.
[1232] Butler’s Dialogical Discourse, &c. Of course the guns
would be going all the time; this form of reception appears to have
been that given also to the King or to a general commanding an
expedition.
[1233] State Papers, Dom., liii, 40. Heydon to Nicholas.
[1234] State Papers, Dom., lxxxviii, 27.
[1235] Ibid., ccxx, 25. Professor Laughton was the first to
suggest (Fortnightly Review, July 1866), that the real origin of the
English claim to the lordship of the narrow seas is to be found in
the possession by our early kings of both shores of the Channel.
[1236] Ibid., 2nd May 1635.
[1237] State Papers, Dom., cccxvii, 102.
[1238] Ibid., cccxxxvi, 13 and cccxxxviii, 39.
[1239] Aud. Off. Decl. Accounts, 1699, 65.
[1240] Ibid., 1812, 443 a.
[1241] The last of tonnage measurement varied in different
places, but was of about two tons.
[1242] State Papers, Dom., ccccxxxviii, 102.
[1243] Pennington and his men were paid double wages ‘out of
the French king’s moneys’ (Aud. Off. Decl. Accounts, 1698, 63),
which throws their intense abhorrence of their work into still
stronger relief.
[1244] In this year the Navy and Ordnance offices were
£251,000 in arrears (State Papers, lxxxvii, 35).
[1245] Add. MSS., 17,503.
[1246] Includes ‘all incident expenses,’ such as repairs,
shipkeepers, administration, etc.; the difference between the
totals of the third and fourth columns, together, and the fifth is in
great part covered by the cost of the winter fleets.
[1247] And eight pinnaces.
[1248] Summer ‘guard,’ or fleet.
[1249] Winter guard.
[1250] Includes allowance of twenty shillings a month per man
to the crews of 48 privateers.
[1251] Includes cost of new ships building.
[1252] Few historical students admire Charles I, but even such
a king as he is entitled to the justice of posterity beyond that
which he obtained from his contemporaries. Professor Hosmer
(Life of Sir H. Vane the Younger, p. 497) says that Vane, ‘had
created the fleet out of nothing, had given it guns and men.’ He
appears to think that a naval force, with its subsidiary
manufactures and establishments, could be created in a few
years, but, as a matter of fact, Parliament commenced the
struggle infinitely better equipped at sea than on land, and it was
so powerful afloat that it did not find it necessary to begin building
again till 1646, when the result of the struggle was assured. If Mr
Hosmer is referring to a later period, the statement is still more
questionable, since the number of men-of-war had been
increased and Vane had ceased to have any special connexion,
except in conjunction with others, with naval affairs. Allowing for
his narrow intelligence and vacillating temperament Charles
showed more persistence and continuity of design in the
government of the Navy than in any other of his regal duties; for,
although relatively weaker as regards other powers, England, as
far as ships and dockyards were concerned, was stronger
absolutely in 1642 than in 1625. The use made of the ship-money
showed that under no circumstances could Charles have been a
great naval organiser; but he has at least a right to have it said
that he improved the matériel of the Navy so far as his limited
views and disastrous domestic policy permitted.
Returning to Vane, Mr Hosmer says in one place (p. 148), that
the post of Treasurer was worth £30,000, and in another (p. 376),
£20,000 a year. What Mr Hosmer’s authority (G. Sikes, The Life
and Death of Sir Henry Vane), really writes is, ‘The bare
poundage, which in time of peace came to about £3000, would
have amounted to about £20,000 by the year during the war with
Holland.’ The poundage in peace years never approached £3000,
and, as Vane ceased to be Treasurer in 1650, and, from the date
of his resignation, a lower scale of payment was adopted, the
second part of the calculation is obviously nothing to the purpose.
Whether the reduction in the Treasurer’s commission was due to
Vane, or whether he resigned on account of it, we have no
evidence to show, nor do vague generalities help to clear the
doubt. As bearing testimony to Vane’s disinterestedness Mr
Hosmer quotes Sikes to the effect that he returned half his
receipts, from the date of his appointment as sole Treasurer, at
the time of the self-denying ordinance. Unfortunately the accounts
previous to 1645 are wanting and the question must remain open,
but if the probability may be judged by general tendency it must
be said to be extremely unlikely, since he was Treasurer from 8th
Aug. 1642 till 31st Dec. 1650, and during that time received in
poundage and salary for the five-and-a-half years for which the
accounts remain the sum of £19,620, 1s 10d. There is no sign in
the audit office papers that he returned one penny of his legal
dues, and, whoever else had to wait, he seems to have paid
himself liberally and punctually. Mr Hosmer has only indirectly
noticed that Parliament, when Vane resigned, settled a retiring
pension on him. Sikes says, ‘some inconsiderable matter without
his seeking, was allotted to him by the Parliament in lieu thereof’
(i.e., of his place). The ‘inconsiderable matter,’ was landed estate
producing £1200 a year. Seeing that he held his post for only
seven and a half years, that during that time he must have
received at least £25,000, and that all previous Treasurers had
been, on occasion, dismissed without any suggestion of
compensation, his disinterestedness may be questioned. When
Parliament voted Ireton an estate of £2000 a year he refused it on
account of the poverty of the country. And Sikes’s version that it
was ‘without his seeking’ is not absolutely beyond doubt. On June
27th, 1650, a petition of Vane’s was referred to a committee to
discuss how the treasurership was to be managed from Dec. 31st
following, and ‘also to consider what compensation is fit to be
given to the petitioner out of that office or otherwise in
consideration of his right in the said office.’ It is no unjustifiable
assumption to infer from this the possibility that the petition at any
rate included a claim for compensation. Sikes, again, tells us that
he caused his subordinate Hutchinson to succeed him, but when,
on 10th Oct. 1650, the motion was before the House that the
‘question be now put’ whether Hutchinson’s appointment should
be made, Vane was one of the tellers for the ‘Noes’ and was
beaten by 27 to 18. This was immediately followed by
Hutchinson’s nomination without a division. The incidents of
Hutchinson’s official career imply a much stronger and more
lasting influence than that of Vane, but the only importance of the
question is as affecting the trustworthiness of the latter’s
seventeenth century biographer. Mr Hosmer, like all other writers
on Vane, appears to quote Sikes with implicit faith, but the man
evidently wrote only loosely and generally, making up in
enthusiasm what he lacked in exactness; e.g., ‘In the beginning of
that expensive war he resigned the treasurership of the Navy.’
Hutchinson succeeded him from 1st Jan. 1650-1, and war with
Holland did not occur till June 1652. There is nothing to show that
Vane was not an honest administrator, but his party, fortunately,
produced many others equally trustworthy.
[1253] Add. MSS., 9302, f. 42.
[1254] State Papers, Dom., ccxxxix, 43.
[1255] Add. MSS., 9297, f. 75.
[1256] State Papers, Dom., clxxiii, 32.
[1257] Supra, p. 150.
[1258] State Papers, Dom., ccxlv, 49; January 1627.
[1259] Ibid., l, 45.
[1260] Ibid., cxxxviii, 66.
[1261] Ibid., cxliii, 37.
[1262] J. Holland, Discourse of the Navy.
[1263] Add. MSS., 9301, f. 135.
[1264] Egerton MSS., 2541, f. 123, Deptford was chiefly used
for building, and Chatham for repairing.
[1265] State Papers, Dom., cccii, 27.
[1266] Ibid., cccliii, f. 67.
[1267] State Papers, Dom., cccxlvii, 85.
[1268] Ibid., xlviii, January 20. This, must, however, refer to
some improvements as ring-bolts for the purpose are mentioned
earlier.
[1269] Fœdera, xix, 549.
[1270] It is possible, too, that the present navy button and cap
badge may be traced back, in inception, to the parliamentary
régime. Northumberland’s seal consisted merely of his arms
(reverse), with (obverse) a figure on horseback with a background
of sea and ships; and although earlier Lords Admirals—
Southampton, Lincoln, and Buckingham—had used the anchor,
none of them had combined the coronet, anchor, and wreath.
Warwick’s was one which differs only in the relative proportions of
the details from the button and badge now in use, except that the
anchor is now fouled. If it is only a coincidence it is a curious one.
Popham, Blake, and Deane employed a modification of Warwick’s
seal, omitting the crown; and the Navy Office adopted another,
consisting of three anchors, a large centre one with a smaller on
each side, and ‘The Seale of the Navye Office’ round the edge, so
that the device selected by Warwick seems, in one form or
another, to have been soon widely used and continued. A
reproduction of this Navy Office Seal is used on the binding, and
at the foot of the Preface, of the present volume.
[1271] These prices were paid by the government; the cost to
the sailor depended on the honesty of many intermediaries.
[1272] State Papers, Dom., Interreg., 22nd June 1649; Council
to Generals of fleet.
[1273] Captain John Stevens, Royal Treasury of England, 1725.
He gives no authorities and his figures are very doubtful, but Mr
Dowell (Hist. of Taxes) appears to quote him as trustworthy. In
any case the revenues of the republic enormously exceeded
those of the monarchy. The anonymous writer of a Restoration
pamphlet (The Mystery of the Good Old Cause, 1660) estimates
that the Commonwealth raised £3,000,000 a year.
[1274] The value, in 1894, of the English merchant navy was
£122,000,000, Admiralty expenditure £18,500,000; of the French
merchant navy £10,100,000, Admiralty expenditure £10,500,000.
[1275] Add. MSS., 5500, f. 25.
[1276] De Witt, The True Interest of Holland, p. 227. De Witt
notices the preference given to land operations during the thirty
years’ war.
[1277] Ibid., p. 218, et seq.
[1278] In the Dutch service each captain contracted to provision
his own ship, and the men had meat only once a week.
[1279] Relatively, that is, judged by a standard of comparison
with what they had endured under the Stewarts.
[1280] Burton’s Diary, III, 57, 3rd February 1658-9. There are
several other references in Burton to the care the Long
Parliament bestowed on the Navy.
[1281] Gumble, Life of Monk, p. 75. Eleven hundred according
to a Dutch life of Tromp.
[1282] This is, perhaps, not literally correct; a contemporary
seaman, Gibson, tells us that the aim of the English captains was
to lie on the bow or quarter of their antagonists (Add. MSS.,
11,602, f. 77), but that was very different from the game of long
bowls Englishmen had learnt to be the best medicine for
Spaniards, and had never till now discarded. Our fleets went into
action en masse, the only rule being that each captain should
keep as close as possible to the flag of his divisional commander.
The result at times was that while some ships were being
overwhelmed by superior force others hardly fired a gun, and an
officer who had closely obeyed the letter of his instructions might
afterwards find himself charged with cowardice and neglect of
duty.
[1283] State Papers, Dom., 19th March 1649. There was
theological bitterness involved as well, since the Navy
Commissioners directed that any man refusing meat in Lent was
to be dismissed as refractory, (Add. MSS., 9304, f. 54).
[1284] State Papers, Dom., 12th March 1649, Council to
Generals of the fleet. John Sparrow, Rich. Blackwell, and
Humphrey Blake were appointed on 17th April 1649 to be
treasurers and collectors of prize goods; Rich. Hill, Sam. Wilson,
and Robt. Turpin were added from 8th March 1653.
[1285] Commons Journals, 21st Dec. 1652. The ‘medium’ cost
of each man at sea was reckoned at £4 a month, including
wages, victuals, wear and tear of ships, stores, provision for sick
and wounded, and other incidental expenses. Rawlinson MSS.
(Bodleian Library), A 9, p. 176.
[1286] State Papers, Dom., 12th May 1649, Council to
Generals at sea.
[1287] It is advisable to dwell on this point because the late Mrs
Everett Green (Preface to Calendar of State Papers, 1649-50, p.
24), said, speaking of the Commonwealth seamen generally, that
‘disaffection and mutiny were frequent among them,’ and writers
of less weight have echoed this opinion. The instances of mutiny
were in reality very few—seven between 1649 and 1660—were
not serious, and were, in every case but one attributable to
drunkenness or to wages and prize money remaining unpaid, the
single exception being due to the refusal of a crew to proceed to
sea in what they held to be an unseaworthy ship. This is a very
trifling number compared with the series of such events occurring
during nearly every year of the reign of Charles I. Of disaffection
in the sense of a leaning towards the Stewarts there is not a trace
among the men, and but two or three examples among officers.
The exiles in France and Holland, with that optimism peculiar to
the unfortunate, were continually anticipating that ships and men
were coming over to the royal cause, an anticipation never once
verified in the event. The analogue of the seventeenth century
seaman, if he exists to-day at all, is to be found, not in the man-
of-war’s man, who now has literary preferences and an account in
the ship’s savings bank, but in the rough milieu of a trader’s
forecastle, and among men of this type violence, or even an
outbreak of savage ruffianism, by no means necessarily implies
serious ground of discontent, but may be owing to one of many
apparently inadequate causes. There were no such outbreaks
among the Commonwealth seamen, and the punishments for
drunkenness and insubordination were not disproportionate to the
number of men employed, but if that is made an argument it
should also be applied to the army; nearly every page of
Whitelocke furnishes us with instances of officers and men being
broken, sentenced, or dismissed for theft, insubordination, and
sometimes disaffection, but no one has yet suggested that the
army yearned to restore the Stewarts. The two most striking
examples of these mutinies usually quoted are those of the Hart
in 1650 and the riotous assemblies in London in 1653. In the case
of the Hart what actually happened was that, the captain and
officers being on shore, 28 out of the 68 men on board seized the
ship when the others were below, with the intention, according to
one contemporary writer, of taking her over to Charles, according
to another, of turning pirates, and according to a third, because
they were drunk. Perhaps all three causes were at work, seeing
that the mutineers soon quarrelled among themselves, and the
loyal majority of the crew regained possession of the ship and
brought her back to Harwich. Yet I have seen a serious writer
quote the Hart as an example of desertion to the royalists, an
error probably due to the fact that she was afterwards captured by
the Dutch, and eventually sailed under a Stewart commission until
she blew up at the Canaries. In October 1653 there were tumults
in London, due entirely to the non-payment of prize money, and
these, it is true, required to be suppressed by military force. But
this riot, extending over two days, was the only instance in which
the government found difficulty in dealing with the men, and does
not warrant a general charge of disloyalty during eleven years. If
a detailed examination of the remaining instances were worth the
space, they could be shown to be equally due to causes remote
from politics. Historically, a mutiny among English seamen has
never necessarily signified disloyalty to the de facto sovereign or
government; the mutineers at Spithead and the Nore in 1797
were especially careful to declare their loyalty to the crown, and
their failure at the Nore was probably due to the extent to which
they carried this feeling. If the character of the service rendered to
the republic is compared with that given to Charles I, it is difficult
to understand how the charge of disaffection can be maintained.
[1288] State Papers, Dom., 24th May 1652, Council to vice-
admirals of counties. The subject of impressment belongs more
fitly to the eighteenth century. Here it will be sufficient to remark
that while in many cases the government officials reported that
the men were coming in willingly of their own accord, in others the
press masters found great difficulty in executing their warrants,
and writers of newsletters in London describe the seizure of
landsmen and forcible entry of houses, in which seamen were
supposed to be hiding, in a fashion which reminds the reader of
the beginning of the present century. The two versions are not
irreconcilable; at all times there has been a remainder, after the
best men had been obtained, difficult to reach and willing to make
any sacrifice to escape a man-of-war.
[1289] Add. MSS., 9306, f. 85.
[1290] Thomason Pamphlets, 684/9 The regulations of 1649
were only adaptations of the rules made, independently, long
before by each Lord Admiral when in command of a fleet. Mr
Gardiner has suggested to me that the formal enactment of the
articles at that particular moment was possibly directly connected
with the defeat off Dungeness in November. This view is
supported by the fact that they were obviously not aimed at the
men, with whose conduct no fault had been found and whose
position was, if anything, improved by them, by the definition of
crime and punishment and the institution of a court of eight
officers; while, on the other hand, the severest clauses are those
affecting officers whose conduct, both in action and when
cruising, had in many cases caused great dissatisfaction.
[1291] State Papers, Dom., 31st Dec. 1653.
[1292] State Papers, Dom., 4th Feb. 1652.
[1293] Ibid., 15th Dec. 1652.
[1294] State Papers, Dom., lx, 135, October 1653; Bourne to
Navy Commissioners.
[1295] State Papers, Dom., xxix, 57; October 1652.
[1296] Ibid., 6th Jan. 1653.
[1297] Ibid., xxx, 84, and xlv, 66.
[1298] From the Dutch Grom, or Low Latin Gromettus, one
occupied in a servile office. Gromet is at least as old as the
thirteenth century and then meant a ship’s boy. Later it came to
mean ordinary seamen; here it is applied to a class between
ordinary seamen and boys, but probably nearer, in qualifications,
to the former than the latter.
[1299] The earliest mention of midshipmen yet noticed is in a
letter of 7th Feb. 1642-3, in which a Mr Cook writes that he will
not undervalue himself by allowing his son to accept such a
place.
[1300] The pay of the privates was 18s per month; no officer of
higher rank than serjeant was in charge.
[1301] State Papers, Dom., 19th April 1655. Hatsell to Col.
John Clerke (an Admiralty Commissioner).
[1302] State Papers, Dom., ccv, 54. Disborowe lent £5000,
which he had succeeded in getting back; seven aldermen
£19,500, of which £11,700 still remained.
[1303] Add. MSS., 22,546, f. 185, and 18,986, f. 176.
[1304] The methods of these gentlemen were sometimes
directly ancestral to those of their successors in the prize courts
of the beginning of this century. In one case a ship was
condemned and its cargo sold, apparently on their own sole
authority; the Admiralty Court ordered restitution, and then the
Commissioners presented a bill of £2000 for expenses (State
Papers, Dom., 26th Feb. 1655). A contemporary wrote, ‘It was
nothing for ordinary proctors in the Admiralty to get £4000 or
£5000 a year by cozening the state in their prizes till your
petitioner by his discovery to the Council of State spoiled their
trade for a great part of it,’ (T. Violet, A True Narrative, etc., Lond.
1659, p. 8).
[1305] State Papers, Dom., xc, 2.
[1306] Ibid., 18th March 1654.
[1307] Resolutions at a Council of War on board the Swiftsure:
The humble Petition of the Seamen belonging to the Ships of the
Commonwealth. These two broadsides are in the British Museum
under the press mark 669 f. 19, Nos. 32 and 33, ‘Great Britain
and Ireland—Navy.’
[1308] State Papers, Dom., lxxvi, 81; 1645 (? Oct.).
[1309] State Papers, Dom., clxxiii, 26th Oct. 1657; Morris to
Navy Commissioners.
[1310] Add. MSS., 9304, f. 129. The Sapphire seems to have
been the crack cruiser of her time. The contrast between that
which, with all its faults, was a strong administration, morally
stimulating to officers and men, and the enervating Stewart
régime is illustrated in the life and death—if the expression be
permitted—of this ship, and exemplified in the grim entry in the
burial register of St Nicholas, Deptford, under date of 26th Aug.
1670, ‘Capt. John Pearse and Lieut. Logan shot to death for
loosing ye Saphier cowardly.’
[1311] State Papers, Dom., clxxxii, 8; 6th July 1658.
[1312] State Papers, Dom., 15th Sept., and 16th Nov. 1658.
[1313] I have only noticed one instance of direct interference by
Cromwell in minor details. The widow of a seaman, killed by an
accident on the Fagons, had petitioned the Commissioners of sick
and wounded for help, and had been refused by them. She then
appealed to the Protector, and her memorial bears his holograph
direction to the Commissioners to reconsider their decision, the
case being the same ‘in equity’ as though the man had lost his life
in action (State Papers, cxxx, 98; 10th Nov. 1656). If this is the
only surviving illustration of the character of his intervention in
questions connected with the well-being of the men it is gratifying
that it should be of such a nature.
[1314] State Papers, Dom., ccxii, 109. The revenue of England
for 1659 was estimated at £1,517,000 (Commons Journals).
[1315] Allowance for short victuals.
[1316] State Papers, Dom., ccxxii, 28.
[1317] State Papers, Dom., 20th Dec. 1652.
[1318] Ibid., 21st and 26th March 1653.
[1319] Ibid., 14th April 1654.
[1320] State Papers, Dom., 5th April 1653.
[1321] Ibid., 31st March 1654.
[1322] Ibid., cxl, 43.
[1323] State Papers, Dom., 17th Dec., 1657.
[1324] Add. MSS., 9304, ff. 133,135. It would not be just to
pass from the subject of the aid afforded to the men in disease
and suffering without some notice of Elizabeth Alkin, otherwise
‘Parliament Joan,’ who wore out health and life in their service.
This woman appears to have nursed wounded soldiers during the
civil war, for which she was in receipt of a pension, and, in
February 1653, volunteered similar help for the sailors. She was
then ordered to Portsmouth, and, in view of the before noticed
condition of the town, must have found very real work to which to
put her hand. If £325 went in one item to nurses there must have
been plenty of a kind to be had; but she gave her heart to her
helpless patients, and in June had spent not only all the
government allowance but also her own money, as ‘I cannot see
them want if I have it.’ She was then sent to Harwich, and on
22nd Feb. 1654 returned, weak and ill, to London, with only 3s
remaining. Of the last £10 given to her she had spent £6 on the
Dutch prisoners at Harwich: ‘Seeing their wants and miseries so
great, I could not but have pity on them though our enemies.’ A
week later she again appeals for at least an instalment of her
pension, or to be sent to a hospital in which ‘to end my days less
miserably,’ having been forced to sell even her bed. In May and
September 1654, two warrants, each for £10, were made out, and
her name does not occur again. Even these few data are
sufficient to suggest the outline of a life of self-sacrifice, illumined
by a native kindliness of heart and unsoured by religious
fanaticism, of which there is not a trace in her letters.
[1325] State Papers, Dom., c, 139.
[1326] From seamen’s wages.
[1327] By estimation.
[1328] Average for three years, less taxes.
[1329] By estimation.
[1330] Add. MSS., 9305, 13th Jan. 1657.
[1331] State Papers, Dom., cxxv, 39, 11. Under Charles I,
widows obtained donations from it, but no pensions.
[1332] Add. MSS., 9317, f. 1 et seq. We have not Pett’s reply,
and the full force of the accusations, as they stand, is vitiated by
the fact that they were made by royalist servants inquiring into the
conduct of a Commonwealth official. The committee of inquiry in
1662 consisted of Sir J. Mennes, Sir W. Coventry, Sir W. Penn, W.
Rider, S. Pepys, and R. Ford.
[1333] State Papers, Dom., 30th Nov. 1650. There were five
partners joined with Pride—John Limbrey, Wm. Beak, Thos.
Alderne, Dennis Gauden, and Rich. Pierce (Audit Office Dec.
Accounts, 1708-96). The rates, in 1645, had been eightpence
three farthings and sevenpence; the Victualling was then under
the supervision of the Treasurer (Ibid., 1706-90).
[1334] State Papers, Dom., 12th Jan. 1653, and Add. MSS.,
9306, f. 2.
[1335] State Papers, Dom., xxx, 10.
[1336] State Papers, Dom., 17th Oct. 1654, 1st, 7th, 14th Aug.,
and 8th Sept. 1655.
[1337] It is said that Alderne’s executors could produce neither
vouchers nor assets for £200,000 imprested to him. But the story
rests only on the authority of a royalist Comptroller of the Navy,
Sir R. Slingsby (Discourse of the Navy, f. 58).
[1338] Add. MSS., 9300, f. 330; 19th Nov. 1656.
[1339] State Papers, Dom., 31st Jan. 1660.
[1340] State Papers, Dom., 6th March 1660.
[1341] Ibid., 16th Aug. 1650. This is the medal shown on the
title page.
[1342] State Papers, Dom., cxliv, 66, 68, and Add. MSS., 9305,
f. 155. The Triumph medal was ‘For eminent service in saving ye
Triumph fired in fight w ye Dutch in July 1653.’
[1343] S. P. D., cxvii, 64; 11th Dec. 1655.
[1344] Ibid., cxxxiv, 64.
[1345] Ibid., cxlv, 47; Sep. 1656.
[1346] This list is based on that of Dering (Archæologia, xlviii),
but corrected where collation with the State Papers and other
authorities points in some cases to the certainty, in others to the
probability, of Dering’s being in error, completed by the insertion
of omitted dates, and enlarged by the addition of all such vessels
as were wrecked, captured, destroyed, or sold out of the service,
between 1649 and 1660 and which the Archæologia list, being
only one of ships effective in 1660, does not profess to supply.
Prizes, originally privateers and taken into the service, are
indicated by an asterisk. Being the first attempt at a complete
Commonwealth Navy list, it must almost necessarily contain
some errors, but it is certain that every ship here mentioned was
carried on the Navy list of the state. A few others omitted as
doubtful or more than doubtful may really be entitled to a place in
it; some of the prizes assigned to 1653 may belong to 1652, and,
in some instances, continuity or similarity of name renders the
exact date of purchase or capture a little problematical. It has not
been thought necessary to overload this list with the innumerable
references that could be given, especially as the details seldom
exactly agree in the various papers, but no name has been
inserted except on what appears to be sufficient authority.
Dering’s Dolphin, Minion and Pearl Brigantine, I have been unable
to place; the Pearl is only once mentioned, in 1658, as being ‘for
use as occasion requires.’ The Diver which is also given by him,
was not a man-of-war at all, but a hoy temporarily hired for use in
recovering the guns of wrecked ships, and the Princess, of his
list, was not launched till August 1660. Some of the Dutch prizes
were converted into fire ships before being sold. The use of fire
ships was not new in either the English or foreign services, but
they now appear to have been systematically attached to fleets
and, on one or two occasions, to have been used with effect.
It may be well to remark that the document of April 1660 (State
Papers, ccxx, 33), which purports to be a list of ships then
existing, is altogether untrustworthy.
[1347] The Guinea, Amity, Concord, Discovery, Gilliflower,
Mayflower, Hopewell, Accada, Nonsuch Ketch, and Marmaduke,
were bought into the service in the respective years under which
they are placed, and are marked (B).
[1348] Or Great President.
[1349] The Gilliflower, then called the Archangel, and the
Marmaduke, were two prizes taken by Rupert, recaptured at sea
by their own crews, brought back to England, and taken into the
service.
[1350] Usually said to have been lost in action of July 1653, but
can be traced as the Dunkirk after 1660.
[1351] There is a model of the Bristol in the museum of the
Royal Naval College of Greenwich. No confirmatory evidence is
added to the bare statements of names and dates on the labels
attached to these models, and the dates assigned to some of
them do not inspire a heedless confidence. However, from the
character of the decoration, etc., the model ticketed Bristol is
probably, at any rate, of this period.
[1352] Rebuilt.
[1353] Rebuilt.
[1354] Most of the Commonwealth ships were named after
some event of the civil war. This is probably a derivative of St
Fagans, near Llandaff, where there was a fight in 1647.
[1355] The Royal James, a Stewart privateer, commanded by
captain Beach, afterwards admiral Sir Richard Beach, of the
Royal Navy, who during the exile gave the state’s ships much
trouble. Renamed from the French Les Sorlinges, near which she
was taken.
[1356] The Blackmoor and Chestnut were especially designed
for service on the coast of Virginia (State Papers, Dom., cxli, 127).
[1357] A Spanish prize; the earlier Elias was Dutch, and
remained in the effective as a cruiser.
[1358] For use in the Medway, and carrying one bow gun.
[1359] Add. MSS., 11,602, f, 49.
[1360] State Papers, Dom., ccxiii, 81.
[1361] Dering’s list.
[1362] Ed. Hayward, The Sizes and Lengths of Rigging for all
His Majesty’s Ships, 1660. Although not printed till 1660 this was
written in 1655.
[1363] The absence of all allusion to davits is stranger from the
fact that they are found referred to, evidently as well known and in
common use, in navy papers of 1496. They were then used for
the anchors. It seems singular that in the intervening century and
a half the principle had not been applied to hoisting in the boats.
In the Nomenclator Navalis of 1625 (really Manwayring’s
Dictionary) he speaks of boat tackles ‘wch stand one on the main
mast shrowds the other on the fore mast shrowds to hoise the
boat,’ and this plan was identical with that in use in 1514 (see
Appendix A).
[1364] Audit Office Accounts, 1707-94.
[1365] Add. MSS., 9306, f. 68.
[1366] State Papers, Dom., lxxxv, 73.
[1367] Ibid., lxxxii, 13. The Admiralty was paying shipwrights 2s
2d a day.
[1368] Add. MSS., 9306, f. 132. When the Prince was rebuilt in
1640-1, £2571 was spent on gilding and £756 on carving (Add.
MSS., 9297, f. 351).
[1369] State Papers, Dom., ciii, 94.
[1370] The Sovereign, was however of 100, and the Resolution
and Naseby were of 80 guns. The armament of the London, a
second-rate of 1656, was: lower tier, 12 demi-cannon and 12
culverins; middle tier, 12 culverins and 12 demi-culverins;
forecastle 6, waist 4, and quarter-deck 6 demi-culverins (State
Papers, Dom., cl, 170).
[1371] Add. MSS., 22546, f. 42.
[1372] State Papers, Dom., ccxii, 115.
[1373] Add. MSS., 9302, f. 81.
[1374] State Papers, Dom., xxx, 77. But possibly there were
others at sea, although the contracts for hired ships do not show
any large tonnage.
[1375] Sir R. Slingsby, Discourse of the Navy.
[1376] Add. MSS., 9306, ff. 130, 160; 1655-7. Until about this
period ‘the Straits’ was the general term for the whole of the
Mediterranean; ‘the Straits’ mouth,’ and ‘the bottom of the Straits’
respectively describing the western and eastern portions. The
increase of commerce now necessitated more specific
descriptions of locality.
[1377] State Papers, Dom., 10th July 1652.
[1378] Add. MSS., 11,684, f. 3.
[1379] State Papers, Dom., 9th Dec. 1653.
[1380] Add. MSS., 9299, f. 171.
[1381] State Papers, Colonial, 19th Oct. 1654.
[1382] State Papers, Dom., 26th Feb. 1656; Elton to Admiralty
Commissioners. It is very likely that the message did reach
Cromwell.
[1383] The Parliamentary Navy Committee, which had
managed matters throughout the civil war, existed for some time
contemporaneously with the Admiralty Committee. But it soon lost
all authority.
[1384] State Papers, Dom., 12th March 1649.
[1385] The first Commissioners of the Admiralty and Navy were
Generals, Robert Blake, George Monk, John Disborowe, and
Wm. Penn; Colonels, Philip Jones, John Clerk, and Thos. Kilsey;

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Test Bank for Fundamentals of Cost

Accounting 6th by Lanen

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Fundamentals of Cost Accounting 5th Edition Lanen Test

Fundamentals of Cost Accounting 5th Edition Lanen

Solution Manual for Fundamentals of Cost Accounting,

Solution manual for Fundamentals of Cost Accounting

Test Bank for Fundamentals of Cost Accounting, 5th

Solution Manual for Fundamentals of Cost Accounting,

6) Cost information itself is a product with its own customers.

8) Cost accounting information is commonly used in developing financial accounting

12) A cost driver is a factor that causes costs.

20) Benchmarking is a continuous process of measuring a company's products, services, or

40) The just-in-time (JIT) method of production focuses on:

55) Which of the following is not a key financial manager in an organization?

59) Moving of inventory is an example of a(n):

73) Financial accounting:

What is the total differential costs of Alternative Y over Alternative X?

99) All of the following words describe benchmarking except:

102) Examples of the controller's functions include all except:

103) Cost accounting is an integral part of the ________ function in an organization.

Stage in the Value

Stage in the Value

Sales Revenue $ 360,000

(a) Differential Costs

Sales (6,500 Controllers at $130 each) $ 845,000

Sales (6,500 Controllers at $130 each) $ (845,000)

a. Prepare a quantitative analysis of the decision to add sandwiches to the menu.

Additional mortgage cost $ 2,000

Material costs $ 9,000,000

Function Representative Cost Driver

Function Insert letter of appropriate driver (A through F)

a. Costs that are relevant to this decision.

Answer: For the decision of whether to update the restaurant's image:

1. Lower inventory requirements;

Income Statement for the Year

Answer: c) research and development → f) design → a) purchasing → g) production → b)

The Flamboyant Flirt

The Flamboyant Flirt

Are these actions ethical? Why or why not?

Answer: Each of the manager's actions needs to be considered separately:

Payroll department expenses:

Answer: Using benchmarking methods, managers measure a company’s own products,

b. Designers of performance-based incentive systems should identify the trade-offs between

∙ Regular written reminders of "payroll integrity" from top management.

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