Test bank accounting management 11e chapter 01 THE ACCOUNTANTS ROLE IN THE ORGANIZATION

3 Distinguish between the planning and control decisions of managers

4 Distinguish among the problem-solving, scorekeeping, and attention-directing roles of management accountants

5 Identify four themes managers need to consider for attaining success 6 Describe the set of business functions in the value chain

7 Describe three ways management accountants support managers

8 Understand how management accounting fits into an organization’s structure9 Understand what professional ethics mean to management accountants

CHAPTER OVERVIEW

Chapter 1 is an important foundation chapter The theme of the text, Cost Accounting: A Managerial Emphasis, 11/E, is the major role that accounting plays in management decision making Accounting provides information managers need when making decisions Financial accounting provides information to external managers while modern cost accounting yields insightsinto what managers and accountants do within an organization Management accountants provide financial and nonfinancial information to help managers decide how best to deal with challenges and opportunities

Management accounting is successful when it provides information that improves managers’ strategic, planning, and control decisions The use of accounting in the planning and control process is introduced and highlighted in the text example

A framework for understanding management accounting systems in providing managers

information is developed in the chapter The goals, roles, activities, and guidelines of management

accounting systems are described through understanding what managers do

An introduction and discussion of professional ethics including standards of ethical conduct for management accountants is presented.

CHAPTER OUTLINE

Learning Objective 1:

Describe how cost accounting supports management accounting and financial accounting

I Accounting systems: processing information from economic events into useful information for managers and others

A Purpose of cost accounting: to provide information

1 Identifying and measuring financial and other information related to the acquisition or consumption of an organization’s resources

2 Providing users of economic information (managers) useful reports and access to neededinformation

B Cost accounting: provides information relating to cost of acquiring and utilizing resources

for both management and financial accounting

1 Management accounting: focus on internal reporting for decision making of managers

in fulfilling organization’s goals

a Emphasis on the organization—the future and influencing behavior of managers andemployees

b Concern with development and implementation of strategies and policies

2 Financial accounting: focus on external reporting for decision making of those outside

the organization

a Emphasis on financial statementsb Strict adherence to GAAP

3 Cost management

a Approaches and activities of managers in planning and control

b Integral part of general management strategies and their implementation

Do multiple choice 1.Assign Exercise 1-16.

Learning Objective 2:

Understand how management accountants affect strategic decisions

II Strategic decisions and management accounting: key to a company’s success in creating value for customers while differentiating itself from its competitors

A Providing information about the sources of competitive advantage

1 Strategy: how an organization uses what it has to get what it wants within the

2 Two broad strategies used

a Providing a quality product or service at a lower price than competitorsb Providing a unique product or service at a higher price than competitors

3 Role of management accountant: provide managers information in helping formulate strategy

B Identifying and building resources and capabilities

1 Strategic analysis: matching knowledge of marketplace opportunities and threats with company’s resources and capabilities

2 Balance sheet information about assetsa Current resources

i Cash adequacy

ii Inventory management

b Long-term productive assets: important strategic decisions for the right

i Analyze trends and measure efficiencies

ii Develop network of relationships with customers and suppliers

iii Identify financial and nonfinancial costs and benefits associated with alternative choices

c Intangible assets

Do multiple choice 2.Assign Exercise 1-16 (if not previously assigned).

Learning Objective 3:

Distinguish between the planning and control decisions of managers

III Management accountant’s role in implementing strategy [Exhibits 1 and 2]

A Implementing strategy: managers taking action by using planning and control systems to help the collective decisions of an organization

1 Planning

a Thinking process

i Selecting organization goals

ii Predicting results under various alternatives of achieving those goalsiii Deciding how to attain desired goals

b Communicating goals and how to attain them to entire organization

2 Control

a Taking actions to implement the planning decisionsb Deciding on performance evaluation

3 Feedback: linking planning and control to help future decision making

TEACHING TIP: The decision-making process is akin to the thinking process Individuals as

well as groups of all types and sizes employ common elements in making decisions The key for the use of accounting in the process is usually in “determining relevant information” but may be used in each stage Chapter 11 expands upon this process An interesting reading on group decision making is from Fortune, October 5, 1992, “How Public Opinion Really Works,” pages 102–108, written by Daniel Yankelovich.

Feedback is an interesting aspect to explore as it highlights the ongoing nature of decision making One can give numerous examples to prove the adage that in solving one problem, several more problems are created

Do multiple choice 3.Assign Problem 1-25.

1 Three roles of management accountants for success

a Problem solving: comparative analysis for decision makingb Scorekeeping: accumulating data and reporting reliable resultsc Attention directing: helping managers properly focus their attention

2 Goals to assist managers in making better decisions [Survey of Company Practice]

a Different decisions emphasize roles differently

i Strategy and planning emphasize problem solving

ii Control emphasizes scorekeeping and attention directing

b Interaction among types of decisions means activity/roles done simultaneouslyc Information must be relevant and timely to be useful

Do multiple choice 4 and 5 Assign Problems 1-26 and Exercise 1-17 or 1-18.

Learning Objective 5:

Identify four themes managers need to consider for attaining success

C Enhancing the value of management accounting systems by guiding managers to focus on

challenges [Concepts in Action]

1 Customer focus [Exhibit 1-3] Learning Objective 6:

Describe the set of business functions in the value chain

2 Value-chain and supply-chain analysis [Exhibits 1-4 and 1-5]

a Companies add value through—i Research and development

ii Design of products, services, or processesiii Production

iv Marketingv Distributionvi Customer service

b Managers in all business functions are customers of management accounting information

3 Key success factors a Cost and efficiencyb Quality

c Time

d Innovation

4 Continuous improvement and benchmarking

Do multiple choice 6 and 7 Assign Exercises 1-19 or 1-20 and 1-22.

Learning Objective 7:

Describe three ways management accountants support managers

D Providing the most value through three key management accounting guidelines

1 Employ cost-benefit approach

2 Recognize behavioral and technical considerations3 Identify different costs for different purposes

Do multiple choice 8.Assign Problem 1-24.

Learning Objective 8:

Understand how management accounting fits into an organization’s structureE Working within the organization

1 Line and staff relationships [Exhibit 1-6]

2 The chief financial officer and the controller

Do multiple choice 9.Assign Problem 1-27.

Learning Objective 9:

Understand what professional ethics mean to management accountantsIV Professional ethics

A Guidelines

1 IMA certification programs

2 IMA Standards of Ethical Conduct for Management Accountants [Exhibit 1-7]

a Competenceb Confidentialityc Integrity

d Objectivity

B Typical challenges: Guidance as to “Resolution of Ethical Conduct” [Exhibit 1-8]

Do multiple choice 10.Assign Exercise 1-23 and Problems 1-28 and 1-29.

CHAPTER QUIZ SOLUTIONS: 1 b 2 c 3 d 4 c 5 a 6 b 7 d 8 d 9 c 10 a

c Accountants are required by their code of ethics to use GAAP accounting.

d Accrual accounting provides a uniform way to measure an organization’s financial performance.

2 The key to a company’s success is creating value for customers whilea increasing the market value of its stock.

b reducing costs to the least amount necessary.c differentiating itself from its competitors.

d employing the best managers and cost accountants available.3 A quantitative expression of a plan of action is called a(n)

a strategic analysis report c financial statement.b performance report d budget.

4 The primary users of information provided by a management accountant area downstream components to the total value chain

b upstream components to the total value chain.c managers within the organization

d customers of the organization.

5 A managerial emphasis for cost accounting meansa accountants are focused on decision support

b accountants are the watchdogs that make sure managers adhere strictly to strategic plans.c managers use cost accounting for providing financial information but look elsewhere for

nonfinancial information.

d managers must take courses in cost accounting.

6 The design of a management accounting system should be guided by thea requirements for financial reporting.

b challenges facing managers.

c standards developed for cost accounting by the Cost Accounting Standards Board.d preferences of the organization’s financial officer.

7 Four themes are common to many managers The critical theme for all of these isa developing relationships with suppliers.

b benchmarking and continuous improvement

c reducing costs and improving efficiencies.

d improving customer focus and customer satisfaction.

8 Which of the following is not a key guideline used by management accountants?

a Different costs for different purposesb Cost-benefit approach

c Behavioral considerationd Technical supremacy

9 management exists to provide advice and assistance to those responsible for attaining the objectives of the organization.

a Lineb Functionalc Staff d Risk

10 Which of the following is not one of the ethical responsibilities of a management accountant?

a Complianceb Confidentialityc Integrityd Objectivity

WRITING/DISCUSSION EXERCISES

1.Describe how cost accounting supports management accounting and financial accounting

What are some basic characteristics of accounting that all accountants use whether in financial or managerial accounting? The Financial Accounting Standards Board (FASB)

describes a hierarchy of accounting qualities in its second Statement of Financial Accounting Concepts The characteristics deemed important for financial accounting are the same as those described throughout the text as those of managerial accounting The Concepts describe the users of accounting information as “decision makers” with the constraints of cost/benefit and materiality The qualities of accounting information are given as “understandability, decision usefulness, relevance, and reliability.” Relevance is further described by the terms “predictive value, feedback value, and timeliness.” Reliability is characterized by “verifiability, neutrality, and representational faithfulness.” The additional quality of comparability, including

consistency, belongs to the descriptors of decision usefulness These qualities apply to all accounting information, financial or managerial, in processing any economic transaction that have occurred into information useful for making decisions

The definition given for accounting by the 1941 Committee on Terminology of the American Institute of Accountants is “ the art of recording, classifying, and summarizing in a

significant manner and in terms of money, transactions, and events which are in part, at least, of a financial character, and interpreting the results thereof.” This definition was before the study of cost accounting as an academic subject, but note the statement from the current text about accounting systems—“Processing any economic transactions entails collecting, categorizing, summarizing, and analyzing.” Some basic characteristics define accounting.

From FASB Statement of Financial Accounting Concepts No 2 (Stamford, CT: FASB, 1980)

2 Understand how management accountants affect strategic decisions

Explain how routine reports to managers not only provide information but also influence behavior regarding the planning and controlling of operations Throughout the text, the behavior or performance of people is noted in response to goals set, structure of bonus

calculations, choice of financial reporting (absorption versus variable costing and the build up ofinventory), designation as cost center versus profit or investment center, etc The information provided will be acted upon based upon the user’s understanding and individual goals Goal congruence as a concept is introduced at a later point but has pertinence here People will work to achieve their own goals within the company’s structure They will look to the measurement being used to further their own goals Managers must be careful in designing measures of

performance to insure the measures work to attain the company’s strategic goals.

3 Distinguish between the planning and control decisions of managers

Describe the steps in a decision-making or thinking process Exhibit 1-1 can be used as an

example Students may be given a situation or asked to use a recent decision they have made Any goal-setting situation can be an example Perhaps the student selects the goal of making good grades for the semester to gain a “good student discount” for car insurance purposes Knowing what is expected for the discount and for earning specific grades in each class assists inpredicting results under various alternative ways of achieving the goal Keeping a log of how

time was spent would measure action taken Comparing the log of how the time was spent to theplanned usage of time comprises control Evaluating the results of time spent and grades earned are an example of feedback

4 Distinguish among the problem-solving, scorekeeping, and attention-directing roles of management accountants

Describe the steps in making a decision in terms of the roles of management accountants

Using the example given in Learning Objective 3 above, the keeping of a study log would be an example of scorekeeping Comparing the log of how the time was actually spent to the planned usage of time spent would be an example of attention directing Evaluating or analyzing the results of time spent and grades earned is an example of problem solving because of the

characteristic of relevance in providing feedback and predictive value as to how time should be spent and for what it should be spent doing.

Students could provide other examples of the use of problem solving, scorekeeping, and attention directing, especially in the area of sports.

5 Identify four themes managers need to consider for attaining success

List some activities a management accountant could do to keep up to date with or ahead of changes in the field of management. Active membership in professional organizations is one

way to keep current One of the points made in the IMA Standards of Ethical Conduct for Management Accountants is to “maintain an appropriate level of professional competence by ongoing development of their knowledge and skills.” (Competence section) Keeping up on the news by reading current periodicals, listening to programs on current business practices, or attending seminars sponsored by professional organizations are all helpful.

6 Describe the set of business functions in the value chain

Describe how managers in all areas of the value chain are customers of accounting

information Include a definition of “value” as it applies to the “value” chain along with the meaning of “success” for management accounting The section in the text describing the valuechain notes that usefulness added to the products or services of a company result in value to the customer Throughout the section, “Enhancing the Value of Management Accounting

Systems,” runs the theme of integration of functions and information for improved decision making by managers, a definition of success for management accounting This is a focus of modern cost accounting–decision support.

7 Describe three ways management accountants support managers

Explain the cost-benefit approach guideline (a) when considered within the confines of an individual company and (b) when considered as interplay between society and the individual company. The explanation given in the section of the text “Cost-Benefit Approach” is useful for

using within the company situation The interplay between society and company can have a different meaning of cost-benefit: the company must bear the cost of additional processing or information for the benefit of society to have a cleaner environment, for example, or to make better decisions about investing or lending, a typical financial accounting function.