Solution manual managerial accounting and finance for hospitality operations CHAPTER 01

CHAPTER INTRODUCTION TO MANAGERIAL ACCOUNTING I Questions Managerial accounting is concerned with providing financial information to persons within the organization to enable them to make informed judgments and effective decisions which further the organization’s goals Financial accounting involves the systematic recording of business transactions, governed by a body of generally accepted accounting principles (GAAP) leading to the preparation of financial statements for the use of various interested parties, internal as well as external The specific differences between Management Accounting (MA) and Financial Accounting (FA) are as follows: a As to objective MA: To provide data for internal users within the business organization FA: To provide data for both internal (management) and external users (e.g creditors, owners, government, etc.) b As to compliance with GAAP MA: Reports need not be presented in conformity with GAAP to be able to present more useful data to management FA: Financial data should be recorded and presented in accordance with GAAP c As to emphasis on the future MA: This has a strong future orientation FA: This primarily provides summaries of past financial transaction d As to the relevance and flexibility of data MA: Special reports containing both historical and projected data are prepared to meet the needs of specific users They contain information, quantitative and qualitative, that are relevant for a particular decision FA: All-purpose reports with historical data are prepared for use of different parties 1-2 Solutions Manual - Managerial Accounting and Finance for Hospitality Operations e As to emphasis on precision and timeliness of report MA: Timeliness is often more important than precision to managers Prompt submission of the report is necessary to preserve its usefulness and good estimates may be enough to make good decisions FA: Reports are still useful even if submitted late and show summaries of financial consequences of actual and past activities where precision is required f As to reporting requirements of an organization MA: This focuses reporting on the parts or segments (i.e., product line, sales, territories, divisions, departments) of the company FA: This is primarily concerned with reporting for the company as a whole g As to requirement for compliance with law MA: This is not mandatory FA: This is required by law as exemplified by the report requirements of the BIR, SEC and other governmental entities Refer to page 3 Refer to pages to Refer to page The manager of the sandwich department might have responsibility for such things as determining normal stock levels for various kinds of sandwiches, ordering to maintain those levels, selecting new employees, supervising the work of employees, and monitoring the adequacy and accuracy of weighing equipment, the pricing of packaged items, and the adequacy and state of repair of storage equipment Three factors suggest that such a department could, at best, operate successfully as a cost center in a responsibility accounting system: (1) severe limits on the types of costs actually controllable by the manager; (2) the manager’s inability to control prices; and (3) the extent to which decisions and actions of other managers at that store affect the sales volume in the sandwich department The sandwich manager might determine the quantity of ingredients of a sandwich for each kind required to meet the special demands of customers in the area; but the cost is determined by some higher-level manager who is responsible for a central purchasing function to serve all stores in the area The manager might determine how many employees of each type are needed and when each should work; but wage rates for each class of employees are probably established at a higher level Even the total number of hours worked in the department might depend on a higher-level decision about the hours during Introduction to Managerial Accounting 1-3 which the entire store will be open (A local manager may be able to decide that personal service in some departments for only some of those hours.) Many costs “related” to the sandwich department are joint costs (e.g., heat, light, power, depreciation on store equipment, wages of check-out clerks, rent, janitorial service) that should not be in a report that might be used to evaluate the manager’s performance Thus, if the sandwich department is designated a responsibility center, a limited number of costs are likely to be fully controllable at the manager’s level and hence properly includible in a report intended to reflect the results of decisions by that department’s manager Although managers in individual stores might have authority to establish prices for specific kinds of sandwiches, some central unit within the chain will mandate many prices because such are quoted in area-wide advertisements for the chain This factor speaks directly against designating the department as a profit center A similar conclusion flows from the fact that the sales volume in the department, no matter how good the manager’s plans and supervision of his own area, can be greatly influenced by the abilities of managers of other departments and of the entire store (How good must the quality of service and product be in the sandwich department in a particular store in a chain in order to offset the loss of customers because repeated stockouts occur due to poor forecasts by the produce and general grocery managers? Except in the case of advertised specials, to what extent today’s shoppers patronize stores in different locations for different items on a normal shopping list?) In summary, while it might be possible to institute some type of responsibility accounting in the setting of an individual store of a chain of supermarkets, such a move requires considerable analysis to determine the items controllable by an individual manager, and this preliminary analysis suggests that cost centers, not profit centers, would be the most appropriate (a) Plans for taking a course in college include the amount of time to devote to it and to other courses Students formulate objectives for grades, for the knowledge to be gained for its own sake, for future courses, and so on They evaluate their personal strengths and weaknesses to determine how much work to Examinations provide feedback on the sufficiency of work being done; test results might indicate that more, less, or the same amount of work should be devoted to the course Such evaluations can be made whether the major objective is to gain knowledge or just to obtain a particular grade (b) Planning for a long automobile trip involves such matters as the amount of time to be spent on the road, the desired time of arrival, the cost of various services along the way (gas and oil, lodging, food, tolls, etc.), the value of 1-4 Solutions Manual - Managerial Accounting and Finance for Hospitality Operations taking various routes, and so on Each of these factors can be affected by the objectives of the trip A trip home from college is usually made because the student would rather be at home than at school, so time en route is more critical than if one were simply touring the country between school and home The costs involved in various alternative routes and schedules are important whatever the purpose of the trip, and influence decisions regarding route, lodgings, and food During a long trip, you would examine results to see if you were meeting your objectives If the trip were taking too long, some actions might be indicated, such as taking a shorter but less scenic route, or more costly but faster toll roads Again, evaluations of strengths and weaknesses are important; financial resources, the quality of the car, one’s ability to drive under different conditions, and the possibility of emergencies developing are a few concerns that you need to consider in selecting a route (c) Decorating one’s own apartment is very much goal-directed; the apartment or room must satisfy several demands It must be pleasant to live and entertain in, yet it must be within one’s means Once the tenant has set objectives, the remaining steps include formulating plans to meet them; examining colors, types of furniture, lighting, floor covering, pictures and other wall decorations to see if they fit the objectives Provided that the selected elements meet price requirements, the work can proceed; but as it does, evaluations will be made regarding the effects being created A picture or rug that looked perfect in the store might look terrible in the room and modifications will be needed Some decisions made during the planning process may be irrevocable; the cost of installing wall-to-wall carpeting is committed, while a piece of furniture might be exchanged Furniture and pictures can be moved once they are obtained, but a new doorway broken through a wall cannot easily be shifted a few feet to the left (d) The lines of reasoning are about the same as with the other items The coach must evaluate the available resources (players), plan how to gain the best results from them, ensure that the players follow the plans, evaluate the results of using particular plans, and modify plans For example, a coach of a football team may stress a running game or a passing game, depending on the talents of the players If the players tend to be fast but small, one defensive arrangement may be better than others It is also necessary to examine the environment – in this case, the other teams that will be played The plan for a particular game will depend largely on the team being played and on weather conditions If the opponent rarely passes, the coach might bring defenders closer to the line of Introduction to Managerial Accounting 1-5 scrimmage to stop the runners As play progresses (interim evaluations), the coach might see weaknesses in the other team and develop a different strategy (a) Bosco has violated both the confidentiality and integrity standards He has disclosed confidential information and has used it to profit, or at least as a repayment for his sister’s favors He has also acted in a way that discredits the profession, and has accepted gifts (tips from his sister) that influenced his actions (b) Ramos has violated the competence, integrity, and objectivity standards He failed the competence standard by not preparing a report that used all relevant information He failed to communicate unfavorable information, actively subverted to organization’s objectives by trying to influence it to accept a project it should reject, and probably did so in the hope of a quid pro quo from his superior These acts violate the integrity standard He did not disclose all relevant information, nor communicate it fairly and objectively The objectivity and competence standards appear to overlap in the area of reporting and disclosure, but Ramos seems to have hit a trifecta II Multiple Choice Questions C B C A B 10 D C B A D 11 12 13 14 15 C C B D A 16 D 17 D ...1-2 Solutions Manual - Managerial Accounting and Finance for Hospitality Operations e As to emphasis on precision and timeliness of report MA: Timeliness is... lodging, food, tolls, etc.), the value of 1-4 Solutions Manual - Managerial Accounting and Finance for Hospitality Operations taking various routes, and so on Each of these factors can be affected... to it and to other courses Students formulate objectives for grades, for the knowledge to be gained for its own sake, for future courses, and so on They evaluate their personal strengths and weaknesses