Test Bank 10th-Ed Managerial Accounting Creating Value In A Dynamic Business Environment by Ronald W. Hilton

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Test Bank 10th-Ed Managerial Accounting Creating Value In A Dynamic Business Environment by Ronald W. Hilton

Sample Chapter No 1                                                             

Chapter 01

The Changing Role of Managerial Accounting in a Dynamic Business Environment

 

 

True / False Questions

1. Controlling involves the coordination of daily business functions within an organization.

True    False

 

2. Measuring the performance of managers and subunits is not an objective of managerial accounting.

True    False

 

3. Middle-level managers would likely be considered internal users of accounting information rather than external users.

True    False

 

4. A controller is normally involved with preparing financial statements.

True    False

 

5. The upper limit on the production of goods and services if everything works perfectly is known as practical capacity.

True    False

 

 

Multiple Choice Questions

6. Which of the following statements about managerial accountants is false?

A. Managerial accountants more and more are considered “business partners.”

 

B. Managerial accountants often are part of cross-functional teams.

 

C. An increasing number of organizations are segregating managerial accountants in separate managerial-accounting departments.

 

D. In a number of companies, managerial accountants make significant business decisions and resolve operating problems.

 

E. The role of managerial accountants has changed considerably over the past decade.

 

7. The day-to-day work of management teams will typically comprise all of the following activities except:

A. decision making.

 

B. planning.

 

C. costminimizing.

 

D. directing operational activities.

 

E. controlling.

 

8. Which of the following functions is best described as choosing among available alternatives?

A. Decision making.

 

B. Planning.

 

C. Directing operational activities.

 

D. Controlling.

 

E. Budgeting.

 

9. Which of the following managerial functions involves a detailed financial and operational description of anticipated operations?

A. Decision making.

 

B. Planning.

 

C. Directing operational activities.

 

D. Controlling.

 

E. Measuring.

 

10. Which of the following involves the coordination of daily business functions within an organization?

A. Decision making.

 

B. Planning.

 

C. Directing operational activities.

 

D. Controlling.

 

E. Motivating.

 

11. Taurus Company has set various goals, and management is now taking appropriate action to ensure that the firm achieves these goals. One such action is to reduce outlays for overhead, which have exceeded budgeted amounts. Which of the following functions best describes this process?

A. Decision making.

 

B. Planning.

 

C. Coordinating.

 

D. Controlling.

 

E. Organizing.

 

12. Which of the following is not an objective of managerial accounting?

A. Providing information for decision making and planning.

 

B. Assisting in directing and controlling operations.

 

C. Maximizing profits and minimizing costs.

 

D. Measuring the performance of managers and subunits.

 

E. Motivating managers toward the organization’s goals.

 

13. The role of managerial accounting information in assisting management is a(n):

A. financial-directing role.

 

B. attention-directing role.

 

C. planning and controlling role.

 

D. organizational role.

 

E. problem-solving role.

 

14. Employee empowerment involves encouraging and authorizing workers to take initiatives to:

A. improve operations.

 

B. reduce costs.

 

C. improve product quality.

 

D. improve customer service.

 

E. All of the other answers are correct.

 

15. The process of encouraging and authorizing workers to take appropriate initiatives to improve the overall firm is commonly known as:

A. planning and control.

 

B. employee empowerment.

 

C. personnel aggressiveness.

 

D. decision making.

 

E. problem recognition and solution.

 

16. Which of the following business models considers financial, customer, internal operating, and other measures in the evaluation of performance?

A. Deterministic simulation.

 

B. Balanced scorecard.

 

C. Payoff matrix.

 

D. Decision tree.

 

E. Chart of operating performance (COP).

 

17. Which of the following perspectives is normally absent in a balanced scorecard?

A. Financial.

 

B. Customer.

 

C. Internal operations.

 

D. Learning and innovation/growth.

 

E. None of these.

 

18. Managerial accounting:

A. focuses only on historical data.

 

B. is governed by GAAP.

 

C. focuses primarily on the needs of personnel within the organization.

 

D. provides information for parties external to the organization.

 

E. focuses on financial statements and other financial reports.

 

19. Managerial accounting:

A. is unregulated.

 

B. produces information that is useful only for manufacturing organizations.

 

C. is based exclusively on historical data.

 

D. is regulated by the Securities and Exchange Commission (SEC).

 

E. generally focuses on reporting information about the enterprise in its entirety rather than by subunits.

 

20. All of the following entities would have a need for managerial accounting information except:

A. the state of Michigan.

 

B. Google.

 

C. Abercrombie & Fitch.

 

D. H&R Block.

 

E. None of these responses is correct, as all of these entities would use managerial accounting information.

 

21. Which of the following choices correctly depicts whether McDonald’s, the University of Wisconsin, and Apple Inc. would have a need for managerial accounting?

A. Choice A

 

B. Choice B

 

C. Choice C

 

D. Choice D

 

E. Choice E

 

22. Which of the following would likely be considered an internal user of accounting information rather than an external user?

A. Stockholders.

 

B. Consumer groups.

 

C. Lenders.

 

D. Middle-level managers.

 

E. Government agencies.

 

23. Financial accounting focuses primarily on reporting:

A. to parties outside of an organization.

 

B. to parties within an organization.

 

C. to an organization’s board of directors.

 

D. to financial institutions.

 

E. for financial institutions.

 

24. Which of the following characteristic(s) relate(s) more to managerial accounting than to financial accounting?

A. A focus on reporting to personnel within an organization.

 

B. A focus on reporting to external parties.

 

C. An area of accounting that is heavily regulated.

 

D. A focus on providing information that is relevant for planning, decision making, directing, and control.

 

E. A focus on reporting to personnel within an organization and a focus on providing information that is relevant for planning, decision making, directing, and control.

 

25. Which of the following statements represents a similarity between financial and managerial accounting?

A. Both are useful in providing information for external users.

 

B. Both are governed by GAAP.

 

C. Both draw upon data from an organization’s accounting system.

 

D. Both rely heavily on published financial statements.

 

E. Both are solely concerned with historical transactions.

 

26. Which of the following employees at Delta Airlines would not be considered as holding a line position?

A. Pilot.

 

B. Chief financial officer (CFO).

 

C. Flight attendant.

 

D. Ticket agent.

 

E. Baggage handler.

 

27. Which of the following employees would be considered as holding a line position?

A. Exxon Corporation’s vice-president for government relations.

 

B. The controller of General Motors.

 

C. A secretary employed by Verizon Communications.

 

D. The manager of food and beverage services at Disney’s Magic Kingdom.

 

E. None of the other answers are correct.

 

28. Which of the following employees at Starbucks would likely be considered as holding a staff position?

A. The company’s chief operating officer (COO).

 

B. The manager of a store located in Kansas City, Missouri.

 

C. The company’s lead, in-house attorney.

 

D. The company’s chief financial officer (CFO).

 

E. The company’s lead, in-house attorney and the company’s chief financial officer (CFO).

 

29. The chief managerial and financial accountant of an organization is the:

A. chief executive officer (CEO).

 

B. treasurer.

 

C. vice-president of accounting.

 

D. internal auditor.

 

E. chief financial officer (CFO).

 

30. Which of the following typically does not relate to the role of a controller?

A. A controller supervises the accounting department.

 

B. A controller safeguards an organization’s assets.

 

C. A controller oversees the preparation of reports required by governmental authorities.

 

D. A controller normally assumes a narrow role within the organization, often preventing the individual’s rise to top management ranks.

 

E. A controller safeguards an organization’s assets and a controller normally assumes a narrow role within the organization, often preventing the individual’s rise to top management ranks.

 

31. A controller is normally involved with:

A. preparing financial statements.

 

B. managing investments.

 

C. raising capital.

 

D. safeguarding assets.

 

E. managing the firm’s credit policy.

 

32. Which of the following is not a function of the treasurer?

A. Safeguarding assets.

 

B. Managing investments.

 

C. Preparing financial statements.

 

D. Being responsible for an entity’s credit policy.

 

E. Raising capital.

 

33. Managerial accountants:

A. often work on cross-functional teams.

 

B. are located throughout an organization.

 

C. are found primarily at lower levels of the organizational hierarchy.

 

D. are found primarily at higher levels of the organizational hierarchy.

 

E. often work on cross-functional teams and are located throughout an organization.

 

34. In order for a company to achieve a sustainable competitive advantage, it must:

A. perform one or more activities in the value chain at the same quality level as its competitors.

 

B. perform all activities in the value chain at the same quality level as its competitors.

 

C. perform its value chain activities at a higher quality level than one of its competitors.

 

D. two of the answers are correct.

 

35. Which if the following would not be part of a value chain for a fast food restaurant?

A. All of the answers are a part of the value chain.

 

B. Buying produce.

 

C. Mopping the floor.

 

D. Refilling the napkin dispensers.

 

E. Hiring new cooks.

 

36. A restaurant’s value chain includes:

A. only the restaurant.

 

B. only upstream contributors.

 

C. only downstream contributors.

 

D. all of the other answers.

 

E. both up and downstream contributors.

 

37. Strategic cost management is:

A. the process of determining cost drivers.

 

B. the recognition of the importance of cost relationships among the activities in the value chain.

 

C. the process of managing cost relationships to the firm’s advantage.

 

D. two of the other answers are correct.

 

38. Cost management systems tend to focus on an organization’s:

A. machines.

 

B. employees.

 

C. activities.

 

D. customers.

 

E. rules and regulations.

 

39. The upper limit on the production of goods and services if everything works perfectly is known as:

A. practical capacity.

 

B. theoretical capacity.

 

C. utilized capacity.

 

D. management capacity.

 

E. capacitymaximization.

 

40. The capacity concept that allows for normal occurrences such as machine downtime and employee fatigue is known as:

A. practical capacity.

 

B. theoretical capacity.

 

C. utilized capacity.

 

D. management capacity.

 

E. capacity maximization.

 

41. The cost of resources supplied but unused is known as:

A. practical capacity costs.

 

B. the cost of theoretical capacity.

 

C. the cost of unused capacity.

 

D. the cost of resources supplied.

 

E. capacity cost.

 

42. Given the following information, what is the cost of unused capacity? Cost of material supplied is $3,200; Cost of material used is $3,000; Cost of material used per cake is $3; Cost of material supplied per cake is $3.20.

A. $0.20.

 

B. $200.

 

C. $2,000.

 

D. $1,000.

 

E. There is no unused capacity.

 

43. Given the following information, what is the cost of unused capacity? Cost of material supplied is $8,600; Cost of material used is $8,000; Cost of material used per shelf is $8; Cost of material supplied per shelf is $8.60.

A. $600.

 

B. $6,000.

 

C. $0.60.

 

D. $1,000.

 

E. There is no unused capacity.

 

44. The value chain of a manufacturer would tend to include activities related to:

A. manufacturing.

 

B. research and development.

 

C. product design.

 

D. marketing.

 

E. All of the other answers are correct.

 

45. Which of the following choices correctly depicts activities that would be included in a manufacturer’s value chain?

A. Choice A

 

B. Choice B

 

C. Choice C

 

D. Choice D

 

E. Choice E

 

46. Which of the preceding activities would likely not be considered part of The Gap clothing company’s value chain?

A. Designing a new product line.

 

B. Locating and then negotiating terms with a clothing manufacturer.

 

C. Marketing an existing product line.

 

D. Distributing goods from regional warehouses to local stores.

 

E. All of these activities would be an element in the company’s value chain.

 

47. In order for a company to achieve a sustainable competitive advantage, it must perform value chain activities:

A. at the same quality level as competitors, at the same cost.

 

B. at the same quality level as competitors, but at a lower cost.

 

C. at a higher quality level than competitors, at a higher cost.

 

D. at a higher quality level than competitors, but at no greater cost.

 

E. at the same quality level as competitors, but at a lower cost or at a higher quality level than competitors, but at no greater cost.

 

48. The process of managing the various activities in the value chain, along with the associated costs, is commonly known as:

A. activity-based costing.

 

B. strategic cost management.

 

C. total quality management.

 

D. computer-integratedcosting.

 

E. sound management practices (SMP).

 

49. Which of the following can be linked to a wave of corporate scandals that took place not too long ago?

A. Greedy corporate executives.

 

B. Managers who made over-reaching business deals.

 

C. Lack of oversight by companies’ audit boards and boards of directors.

 

D. Shoddy work by external auditors.

 

E. All of these.

 

50. Which of the following acts strives to improve corporate governance and the quality of corporate accounting/reporting?

A. Robinson-Patman.

 

B. Taft-Hartley.

 

C. Sarbanes-Oxley.

 

D. Bush-Cheney.

 

E. Franks-Ashcroft.

 

51. Which of the following statements about the ethical climate of business is false?

A. Greedy corporate executives are, in part, to blame for the rash of corporate scandals that occurred not too long ago.

 

B. Unethical business behavior can have a negative impact on our economy.

 

C. The Sarbanes-Oxley Act strives to improve the overall quality of corporate reporting.

 

D. The Robinson-Patman Act strives to improve the overall quality of corporate reporting.

 

E. Corporate scandals have served as the accounting profession’s wake-up call to pay increased attention to ethical issues in the conduct of business.

 

52. Which of the following is not an ethical standard of managerial accounting?

A. Competence.

 

B. Confidentiality.

 

C. Efficiency.

 

D. Integrity.

 

E. Credibility.

 

53. Which of the following is not an element of competency?

A. To develop appropriate knowledge about a particular subject.

 

B. To perform duties in accordance with relevant laws.

 

C. To perform duties in accordance with relevant technical standards.

 

D. To refrain from engaging in an activity that would discredit the accounting profession.

 

E. To prepare clear reports after an analysis of relevant and reliable information.

 

54. Assume that a managerial accountant regularly communicates with business associates to avoid conflicts of interest and advises relevant parties of potential conflicts. In so doing, the accountant will have applied the ethical standard of:

A. objectivity.

 

B. confidentiality.

 

C. integrity.

 

D. credibility.

 

E. unified behavior.

 

 

Essay Questions

55. Present several examples of managerial accounting information that could help a manager make each of the following decisions:

A. A manufacturing company is currently making a part that is a production headache. The firm is deciding whether to abandon production and buy the part from an outside supplier.
B. An operator of fast-food restaurants is deciding whether to open a new store in Dallas.
Note: Many correct answers are possible.

 

 

 

 

56. Borders Overnight operates an overnight package delivery service that competes with Federal Express and United Parcel Service (UPS). Top management is considering the use of a balanced scorecard to evaluate operations.

A. What is a balanced scorecard and other than customer-satisfaction measures, what are its typical key components?
B. List four customer-satisfaction measures that Borders might use to evaluate performance.

 

 

 

 

57. Consider the descriptors that follow.

1. Is heavily involved with the recordkeeping and reporting of assets, liabilities, and stockholders’ equity.
2. Focuses on planning, decision making, directing, and control.
3. Is heavily regulated.
4. A field that is becoming more “cross-functional” in nature.
5. Much of the field is based on costs and benefits.
6. Is involved almost exclusively with past transactions and events.
7. Much of the information provided is directed toward stockholders, financial analysts, creditors, and other external parties.
8. Tends to focus more on subunits within an entity rather than the organization as a whole.
9. May become involved with measures of customer satisfaction, and the amount of actual cost incurred vs. budgeted targets.

Required:

Determine whether the descriptors are most closely associated with financial accounting or managerial accounting.

 

 

 

 

58. 1. Auditions for actors and actresses
2. Development of promotional materials for use by local newspapers
3. Focus groups to evaluate ideas for potential television comedy series
4. Production of DVDs for release to Best Buy and Blockbuster Video
5. On-location shooting of scenes
6. Fine-tuning and rewrites of scripts
7. Set design and construction for a new medical dramaRequired:A. Evaluate the seven activities as upstream (pre-production), production, or downstream (post-production) in nature.
B. Generally speaking, which activities (upstream, production, or downstream), if any, can management ignore if the company is to be successful in achieving its key strategic goals? 

 

 

 

59. Tae Franklin is the sales manager of Darius Enterprises, a very profitable distributor of office furniture to local businesses. A recent economic downturn has created an extremely tight cash position, and the company has been hurt by the bankruptcy of two key customers.
In late October, anticipating an economic recovery, Franklin began an extensive remodeling of the company’s sales floor. Construction costs, decorating, and equipment purchases are projected to cost $250,000.
Darius has a policy that individual expenditures in excess of $200,000 must be approved by the firm’s board of directors. Franklin, unfortunately, missed the deadline to have the board consider this project at its regular September meeting. Not wanting to wait until the next meeting in December, he subdivided the project in two parts—construction and decorating ($190,000) and equipment purchases ($60,000)—neither of which needed board approval because of the dollar amounts involved.
The project was recently completed and sales have begun to recover. Customers have raved about the new sales area, noting that it is far superior to those of Darius’s competitors.Required:A. Would Franklin’s approach of subdividing the project in two parts have any effect on the company’s financial statements? Briefly explain.
B. Briefly discuss whether Franklin behaved in an ethical manner.
C. Which, if any, of the following standards of conduct would have applicability to Franklin’s conduct: competence, confidentiality, integrity, or credibility? Briefly explain. 

 

 

 

60. Many professions have adopted a series of ethical standards to provide guidance for their memberships. The Institute of Management Accountants (IMA), for example, has published standards that focus on competence, confidentiality, integrity, and credibility. In light of these standards, consider the three cases that follow.

Case A—Leston Corporation has experienced serious financial difficulties in recent years. John Young, the company’s chief financial officer, has just learned that a major competitor was likely to file for bankruptcy; however, he failed to disclose this information at a board meeting held later that day when a plant closure decision was being discussed. The board evaluated several proposals during the session that focused on improving Leston’s financial position.
Case B—QBX Company manufactures fertilizer from various raw materials, including a raw material know as Felstar. Paul Kelly, the firm’s purchasing manager, purposely acquired a lower grade of Felstar than normal because of a very attractive price. The lower-grade product resulted in increased usage during the manufacturing process but had no effect on the fertilizer’s overall quality. An end-of-period report showed that QBX profited from Kelly’s actions, with the overall savings in purchase price more than offsetting the cost of added consumption.
Case C—Central Distributing has a participative budgeting process, allowing employees to have a say in projected sales targets for the upcoming period. These targets are reflected in a series of performance reports that compare actual sales achieved against targeted amounts. Hillary Baxter submitted very low sales targets because, as she confided in a colleague, “I always want to look good in terms of meeting targets, even if anticipated sales and closures don’t materialize.”

Required:

Evaluate the three cases and determine the ethical issues, if any, that are involved. Cite the IMA’s standards if appropriate.

 

 

 

 

61. Briefly distinguish between managerial accounting and financial accounting. Be sure to comment on the general focus, users, and regulation related to the two fields.

 

 

 

 

62. Unused or excess capacity is a key component of contemporary management accounting. Define the term “excess capacity” and explain how it would relate to a coffee shop.

 

 

 

 

63. The value chain is a key component of contemporary management accounting. Define the term “value chain” and explain how it would relate to an airline.

 

 

 

 

 

Chapter 01 The Changing Role of Managerial Accounting in a Dynamic Business Environment AnswerKey

 

 

True / False Questions

1. Controlling involves the coordination of daily business functions within an organization.

FALSE

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-02 Explain four fundamental management processes that help organizations attain their goals.
 

 

2. Measuring the performance of managers and subunits is not an objective of managerial accounting.

FALSE

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Explain the major differences between managerial and financial accounting.
 

 

3. Middle-level managers would likely be considered internal users of accounting information rather than external users.

TRUE

 

AACSB: Reflective Thinking
AICPA BB: Resource Management
AICPA FN: Reporting
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-03 List and describe five objectives of managerial accounting activity.
 

 

4. A controller is normally involved with preparing financial statements.

TRUE

 

AACSB: Reflective Thinking
AICPA BB: Resource Management
AICPA FN: Reporting
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-06 Describe the roles of an organization’s chief financial officer (CFO) or controller; treasurer; and internal auditor.
 

 

5. The upper limit on the production of goods and services if everything works perfectly is known as practical capacity.

FALSE

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-07 Understand and explain the value chain concept.
 

 

Multiple Choice Questions

6. Which of the following statements about managerial accountants is false?

A. Managerial accountants more and more are considered “business partners.”

 

B. Managerial accountants often are part of cross-functional teams.

 

C. An increasing number of organizations are segregating managerial accountants in separate managerial-accounting departments.

 

D. In a number of companies, managerial accountants make significant business decisions and resolve operating problems.

 

E. The role of managerial accountants has changed considerably over the past decade.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 01-01 Define managerial accounting and describe its role in the management process.
 

 

7. The day-to-day work of management teams will typically comprise all of the following activities except:

A. decision making.

 

B. planning.

 

C. costminimizing.

 

D. directing operational activities.

 

E. controlling.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-02 Explain four fundamental management processes that help organizations attain their goals.
 

 

8. Which of the following functions is best described as choosing among available alternatives?

A. Decision making.

 

B. Planning.

 

C. Directing operational activities.

 

D. Controlling.

 

E. Budgeting.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-02 Explain four fundamental management processes that help organizations attain their goals.
 

 

9. Which of the following managerial functions involves a detailed financial and operational description of anticipated operations?

A. Decision making.

 

B. Planning.

 

C. Directing operational activities.

 

D. Controlling.

 

E. Measuring.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-02 Explain four fundamental management processes that help organizations attain their goals.
 

 

10. Which of the following involves the coordination of daily business functions within an organization?

A. Decision making.

 

B. Planning.

 

C. Directing operational activities.

 

D. Controlling.

 

E. Motivating.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-02 Explain four fundamental management processes that help organizations attain their goals.
 

 

11. Taurus Company has set various goals, and management is now taking appropriate action to ensure that the firm achieves these goals. One such action is to reduce outlays for overhead, which have exceeded budgeted amounts. Which of the following functions best describes this process?

A. Decision making.

 

B. Planning.

 

C. Coordinating.

 

D. Controlling.

 

E. Organizing.

 

AACSB: Analytic
AICPA BB: Resource Management
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-02 Explain four fundamental management processes that help organizations attain their goals.
 

 

12. Which of the following is not an objective of managerial accounting?

A. Providing information for decision making and planning.

 

B. Assisting in directing and controlling operations.

 

C. Maximizing profits and minimizing costs.

 

D. Measuring the performance of managers and subunits.

 

E. Motivating managers toward the organization’s goals.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Explain the major differences between managerial and financial accounting.
 

 

13. The role of managerial accounting information in assisting management is a(n):

A. financial-directingrole.

 

B. attention-directing role.

 

C. planning and controlling role.

 

D. organizational role.

 

E. problem-solving role.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Explain the major differences between managerial and financial accounting.
 

 

14. Employee empowerment involves encouraging and authorizing workers to take initiatives to:

A. improve operations.

 

B. reduce costs.

 

C. improve product quality.

 

D. improve customer service.

 

E. All of the other answers are correct.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Explain the major differences between managerial and financial accounting.
 

 

15. The process of encouraging and authorizing workers to take appropriate initiatives to improve the overall firm is commonly known as:

A. planning and control.

 

B. employee empowerment.

 

C. personnel aggressiveness.

 

D. decision making.

 

E. problem recognition and solution.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 01-04 Explain the major differences between managerial and financial accounting.
 

 

16. Which of the following business models considers financial, customer, internal operating, and other measures in the evaluation of performance?

A. Deterministic simulation.

 

B. Balanced scorecard.

 

C. Payoff matrix.

 

D. Decision tree.

 

E. Chart of operating performance (COP).

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 01-03 List and describe five objectives of managerial accounting activity.
 

 

17. Which of the following perspectives is normally absent in a balanced scorecard?

A. Financial.

 

B. Customer.

 

C. Internal operations.

 

D. Learning and innovation/growth.

 

E. None of these.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 01-03 List and describe five objectives of managerial accounting activity.
 

 

18. Managerial accounting:

A. focuses only on historical data.

 

B. is governed by GAAP.

 

C. focuses primarily on the needs of personnel within the organization.

 

D. provides information for parties external to the organization.

 

E. focuses on financial statements and other financial reports.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 01-04 Explain the major differences between managerial and financial accounting.
 

 

19. Managerial accounting:

A. is unregulated.

 

B. produces information that is useful only for manufacturing organizations.

 

C. is based exclusively on historical data.

 

D. is regulated by the Securities and Exchange Commission (SEC).

 

E. generally focuses on reporting information about the enterprise in its entirety rather than by subunits.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 01-04 Explain the major differences between managerial and financial accounting.
 

 

20. All of the following entities would have a need for managerial accounting information except:

A. the state of Michigan.

 

B. Google.

 

C. Abercrombie & Fitch.

 

D. H&R Block.

 

E. None of these responses is correct, as all of these entities would use managerial accounting information.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 01-04 Explain the major differences between managerial and financial accounting.
 

 

21. Which of the following choices correctly depicts whether McDonald’s, the University of Wisconsin, and Apple Inc. would have a need for managerial accounting?

A. Choice A

 

B. Choice B

 

C. Choice C

 

D. Choice D

 

E. Choice E

 

AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Reporting
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 01-04 Explain the major differences between managerial and financial accounting.
 

 

22. Which of the following would likely be considered an internal user of accounting information rather than an external user?

A. Stockholders.

 

B. Consumer groups.

 

C. Lenders.

 

D. Middle-level managers.

 

E. Government agencies.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Explain the major differences between managerial and financial accounting.
 

 

23. Financial accounting focuses primarily on reporting:

A. to parties outside of an organization.

 

B. to parties within an organization.

 

C. to an organization’s board of directors.

 

D. to financial institutions.

 

E. for financial institutions.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Explain the major differences between managerial and financial accounting.
 

 

24. Which of the following characteristic(s) relate(s) more to managerial accounting than to financial accounting?

A. A focus on reporting to personnel within an organization.

 

B. A focus on reporting to external parties.

 

C. An area of accounting that is heavily regulated.

 

D. A focus on providing information that is relevant for planning, decision making, directing, and control.

 

E. A focus on reporting to personnel within an organization and a focus on providing information that is relevant for planning, decision making, directing, and control.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Explain the major differences between managerial and financial accounting.
 

 

25. Which of the following statements represents a similarity between financial and managerial accounting?

A. Both are useful in providing information for external users.

 

B. Both are governed by GAAP.

 

C. Both draw upon data from an organization’s accounting system.

 

D. Both rely heavily on published financial statements.

 

E. Both are solely concerned with historical transactions.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 01-04 Explain the major differences between managerial and financial accounting.
 

 

26. Which of the following employees at Delta Airlines would not be considered as holding a line position?

A. Pilot.

 

B. Chief financial officer (CFO).

 

C. Flight attendant.

 

D. Ticket agent.

 

E. Baggage handler.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-05 Describe the accounting and finance structure in an organization.
 

 

27. Which of the following employees would be considered as holding a line position?

A. Exxon Corporation’s vice-president for government relations.

 

B. The controller of General Motors.

 

C. A secretary employed by Verizon Communications.

 

D. The manager of food and beverage services at Disney’s Magic Kingdom.

 

E. None of the other answers are correct.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-05 Describe the accounting and finance structure in an organization.
 

 

28. Which of the following employees at Starbucks would likely be considered as holding a staff position?

A. The company’s chief operating officer (COO).

 

B. The manager of a store located in Kansas City, Missouri.

 

C. The company’s lead, in-house attorney.

 

D. The company’s chief financial officer (CFO).

 

E. The company’s lead, in-house attorney and the company’s chief financial officer (CFO).

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-05 Describe the accounting and finance structure in an organization.
 

 

29. The chief managerial and financial accountant of an organization is the:

A. chief executive officer (CEO).

 

B. treasurer.

 

C. vice-president of accounting.

 

D. internal auditor.

 

E. chief financial officer (CFO).

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-05 Describe the accounting and finance structure in an organization.
 

 

30. Which of the following typically does not relate to the role of a controller?

A. A controller supervises the accounting department.

 

B. A controller safeguards an organization’s assets.

 

C. A controller oversees the preparation of reports required by governmental authorities.

 

D. A controller normally assumes a narrow role within the organization, often preventing the individual’s rise to top management ranks.

 

E. A controller safeguards an organization’s assets and a controller normally assumes a narrow role within the organization, often preventing the individual’s rise to top management ranks.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 01-06 Describe the roles of an organization’s chief financial officer (CFO) or controller; treasurer; and internal auditor.
 

 

31. A controller is normally involved with:

A. preparing financial statements.

 

B. managing investments.

 

C. raising capital.

 

D. safeguarding assets.

 

E. managing the firm’s credit policy.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-06 Describe the roles of an organization’s chief financial officer (CFO) or controller; treasurer; and internal auditor.
 

 

32. Which of the following is not a function of the treasurer?

A. Safeguarding assets.

 

B. Managing investments.

 

C. Preparing financial statements.

 

D. Being responsible for an entity’s credit policy.

 

E. Raising capital.

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-06 Describe the roles of an organization’s chief financial officer (CFO) or controller; treasurer; and internal auditor.
 

 

33. Managerial accountants:

A. often work on cross-functional teams.

 

B. are located throughout an organization.

 

C. are found primarily at lower levels of the organizational hierarchy.

 

D. are found primarily at higher levels of the organizational hierarchy.

 

E. often work on cross-functional teams and are located throughout an organization.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-06 Describe the roles of an organization’s chief financial officer (CFO) or controller; treasurer; and internal auditor.
 

 

34. In order for a company to achieve a sustainable competitive advantage, it must:

A. perform one or more activities in the value chain at the same quality level as its competitors.

 

B. perform all activities in the value chain at the same quality level as its competitors.

 

C. perform its value chain activities at a higher quality level than one of its competitors.

 

D. two of the answers are correct.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-07 Understand and explain the value chain concept.
 

 

35. Which if the following would not be part of a value chain for a fast food restaurant?

A. All of the answers are a part of the value chain.

 

B. Buying produce.

 

C. Mopping the floor.

 

D. Refilling the napkin dispensers.

 

E. Hiring new cooks.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-07 Understand and explain the value chain concept.
 

 

36. A restaurant’s value chain includes:

A. only the restaurant.

 

B. only upstream contributors.

 

C. only downstream contributors.

 

D. all of the other answers.

 

E. both up and downstream contributors.

 

AACSB: Technology
AICPA BB: Leveraging Technology
AICPA FN: Levering Technology
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-07 Understand and explain the value chain concept.
 

 

37. Strategic cost management is:

A. the process of determining cost drivers.

 

B. the recognition of the importance of cost relationships among the activities in the value chain.

 

C. the process of managing cost relationships to the firm’s advantage.

 

D. two of the other answers are correct.

 

AACSB: Reflective Thinking
AICPA BB: Legal
AICPA FN: Decision Making
Blooms: Analyze
Difficulty: 2 Medium
Learning Objective: 01-07 Understand and explain the value chain concept.
 

 

38. Cost management systems tend to focus on an organization’s:

A. machines.

 

B. employees.

 

C. activities.

 

D. customers.

 

E. rules and regulations.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-08 Explain how investments in capacity affect managerial decision making.
 

 

39. The upper limit on the production of goods and services if everything works perfectly is known as:

A. practical capacity.

 

B. theoretical capacity.

 

C. utilized capacity.

 

D. management capacity.

 

E. capacity maximization.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-08 Explain how investments in capacity affect managerial decision making.
 

 

40. The capacity concept that allows for normal occurrences such as machine downtime and employee fatigue is known as:

A. practical capacity.

 

B. theoretical capacity.

 

C. utilized capacity.

 

D. management capacity.

 

E. capacity maximization.

 

AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-08 Explain how investments in capacity affect managerial decision making.
 

 

41. The cost of resources supplied but unused is known as:

A. practical capacity costs.

 

B. the cost of theoretical capacity.

 

C. the cost of unused capacity.

 

D. the cost of resources supplied.

 

E. capacity cost.

 

AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-08 Explain how investments in capacity affect managerial decision making.
 

 

42. Given the following information, what is the cost of unused capacity? Cost of material supplied is $3,200; Cost of material used is $3,000; Cost of material used per cake is $3; Cost of material supplied per cake is $3.20.

A. $0.20.

 

B. $200.

 

C. $2,000.

 

D. $1,000.

 

E. There is no unused capacity.

 

AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 01-08 Explain how investments in capacity affect managerial decision making.
 

 

43. Given the following information, what is the cost of unused capacity? Cost of material supplied is $8,600; Cost of material used is $8,000; Cost of material used per shelf is $8; Cost of material supplied per shelf is $8.60.

A. $600.

 

B. $6,000.

 

C. $0.60.

 

D. $1,000.

 

E. There is no unused capacity.

 

AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 01-08 Explain how investments in capacity affect managerial decision making.
 

 

44. The value chain of a manufacturer would tend to include activities related to:

A. manufacturing.

 

B. research and development.

 

C. product design.

 

D. marketing.

 

E. All of the other answers are correct.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-08 Explain how investments in capacity affect managerial decision making.
 

 

45. Which of the following choices correctly depicts activities that would be included in a manufacturer’s value chain?

A. Choice A

 

B. Choice B

 

C. Choice C

 

D. Choice D

 

E. Choice E

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 01-07 Understand and explain the value chain concept.
 

 

46. Which of the preceding activities would likely not be considered part of The Gap clothing company’s value chain?

A. Designing a new product line.

 

B. Locating and then negotiating terms with a clothing manufacturer.

 

C. Marketing an existing product line.

 

D. Distributing goods from regional warehouses to local stores.

 

E. All of these activities would be an element in the company’s value chain.

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 01-07 Understand and explain the value chain concept.
 

 

47. In order for a company to achieve a sustainable competitive advantage, it must perform value chain activities:

A. at the same quality level as competitors, at the same cost.

 

B. at the same quality level as competitors, but at a lower cost.

 

C. at a higher quality level than competitors, at a higher cost.

 

D. at a higher quality level than competitors, but at no greater cost.

 

E. at the same quality level as competitors, but at a lower cost or at a higher quality level than competitors, but at no greater cost.

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 01-07 Understand and explain the value chain concept.
 

 

48. The process of managing the various activities in the value chain, along with the associated costs, is commonly known as:

A. activity-based costing.

 

B. strategic cost management.

 

C. total quality management.

 

D. computer-integrated costing.

 

E. sound management practices (SMP).

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-07 Understand and explain the value chain concept.
 

 

49. Which of the following can be linked to a wave of corporate scandals that took place not too long ago?

A. Greedy corporate executives.

 

B. Managers who made over-reaching business deals.

 

C. Lack of oversight by companies’ audit boards and boards of directors.

 

D. Shoddy work by external auditors.

 

E. All of these.

 

AACSB: Ethics
AICPA BB: Legal
AICPA FN: Risk Analysis
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 01-10 Describe the ethical responsibilities and ethical standards that apply to managerial accounting.
 

 

50. Which of the following acts strives to improve corporate governance and the quality of corporate accounting/reporting?

A. Robinson-Patman.

 

B. Taft-Hartley.

 

C. Sarbanes-Oxley.

 

D. Bush-Cheney.

 

E. Franks-Ashcroft.

 

AACSB: Ethics
AICPA BB: Legal
AICPA FN: Reporting
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-10 Describe the ethical responsibilities and ethical standards that apply to managerial accounting.
 

 

51. Which of the following statements about the ethical climate of business is false?

A. Greedy corporate executives are, in part, to blame for the rash of corporate scandals that occurred not too long ago.

 

B. Unethical business behavior can have a negative impact on our economy.

 

C. The Sarbanes-Oxley Act strives to improve the overall quality of corporate reporting.

 

D. The Robinson-Patman Act strives to improve the overall quality of corporate reporting.

 

E. Corporate scandals have served as the accounting profession’s wake-up call to pay increased attention to ethical issues in the conduct of business.

 

AACSB: Ethics
AICPA BB: Legal
AICPA FN: Reporting
Blooms: Evaluate
Difficulty: 3 Hard
Learning Objective: 01-10 Describe the ethical responsibilities and ethical standards that apply to managerial accounting.
 

 

52. Which of the following is not an ethical standard of managerial accounting?

A. Competence.

 

B. Confidentiality.

 

C. Efficiency.

 

D. Integrity.

 

E. Credibility.

 

AACSB: Ethics
AICPA BB: Legal
AICPA FN: Reporting
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 01-10 Describe the ethical responsibilities and ethical standards that apply to managerial accounting.
 

 

53. Which of the following is not an element of competency?

A. To develop appropriate knowledge about a particular subject.

 

B. To perform duties in accordance with relevant laws.

 

C. To perform duties in accordance with relevant technical standards.

 

D. To refrain from engaging in an activity that would discredit the accounting profession.

 

E. To prepare clear reports after an analysis of relevant and reliable information.

 

AACSB: Ethics
AICPA BB: Legal
AICPA FN: Reporting
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 01-10 Describe the ethical responsibilities and ethical standards that apply to managerial accounting.
 

 

54. Assume that a managerial accountant regularly communicates with business associates to avoid conflicts of interest and advises relevant parties of potential conflicts. In so doing, the accountant will have applied the ethical standard of:

A. objectivity.

 

B. confidentiality.

 

C. integrity.

 

D. credibility.

 

E. unified behavior.

 

AACSB: Ethics
AICPA BB: Legal
AICPA FN: Risk Analysis
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-10 Describe the ethical responsibilities and ethical standards that apply to managerial accounting.
 

 

Essay Questions

55. Present several examples of managerial accounting information that could help a manager make each of the following decisions:

A. A manufacturing company is currently making a part that is a production headache. The firm is deciding whether to abandon production and buy the part from an outside supplier.
B. An operator of fast-food restaurants is deciding whether to open a new store in Dallas.
Note: Many correct answers are possible.

A. The cost of each alternative (make vs. buy) would be needed along with information about suppliers that pertains to reliability and product quality (e.g., testimonials from a supplier’s current customers that cite any problems with on-time deliveries, product stockouts, or abnormally high spoilage rates of purchased goods). Given the company is currently making the part, what would happen to the facilities if the firm begins to purchase from outside suppliers? Could the facilities be subleased, used for other profitable products, or downsized (with equipment being sold)? What would happen to existing employees—would there be any layoffs and how much would the company save?
B. The manager needs information about construction or leasing costs along with figures that focus on subsequent operating costs. Also, projected sales, market share figures, and data about competitors would be helpful.

 

AACSB: Analytic
AICPA BB: Industry
AICPA FN: Risk Analysis
Blooms: Analyze
Blooms: Apply
Blooms: Evaluate
Difficulty: 3 Hard
Learning Objective: 01-08 Explain how investments in capacity affect managerial decision making.
 

 

56. Borders Overnight operates an overnight package delivery service that competes with Federal Express and United Parcel Service (UPS). Top management is considering the use of a balanced scorecard to evaluate operations.

A. What is a balanced scorecard and other than customer-satisfaction measures, what are its typical key components?
B. List four customer-satisfaction measures that Borders might use to evaluate performance.

A. The balanced scorecard is a business model that helps to assess a firm’s competitive position and ensures that the firm is progressing toward long-term survival. Balanced scorecards differ from organization to organization; however, in addition to customer-satisfaction measures, most have a combination of financial measures, internal operating measures, and measures of innovation/growth and learning.
B. Customer-satisfaction measures could include number of packages delivered, market share, number of packages lost or damaged, number of customer complaints, average wait time when calling and scheduling a package pickup, and response time to customer problems.

 

AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Analyze
Blooms: Apply
Blooms: Evaluate
Difficulty: 3 Hard
Learning Objective: 01-03 List and describe five objectives of managerial accounting activity.
 

 

57. Consider the descriptors that follow.

1. Is heavily involved with the recordkeeping and reporting of assets, liabilities, and stockholders’ equity.
2. Focuses on planning, decision making, directing, and control.
3. Is heavily regulated.
4. A field that is becoming more “cross-functional” in nature.
5. Much of the field is based on costs and benefits.
6. Is involved almost exclusively with past transactions and events.
7. Much of the information provided is directed toward stockholders, financial analysts, creditors, and other external parties.
8. Tends to focus more on subunits within an entity rather than the organization as a whole.
9. May become involved with measures of customer satisfaction, and the amount of actual cost incurred vs. budgeted targets.

Required:

Determine whether the descriptors are most closely associated with financial accounting or managerial accounting.

 

 

AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Reporting
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Explain the major differences between managerial and financial accounting.
 

 

58. 1. Auditions for actors and actresses
2. Development of promotional materials for use by local newspapers
3. Focus groups to evaluate ideas for potential television comedy series
4. Production of DVDs for release to Best Buy and Blockbuster Video
5. On-location shooting of scenes
6. Fine-tuning and rewrites of scripts
7. Set design and construction for a new medical dramaRequired:A. Evaluate the seven activities as upstream (pre-production), production, or downstream (post-production) in nature.
B. Generally speaking, which activities (upstream, production, or downstream), if any, can management ignore if the company is to be successful in achieving its key strategic goals?A.

B. None. All are important and must be considered.

 

AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 01-08 Explain how investments in capacity affect managerial decision making.
 

 

59. Tae Franklin is the sales manager of Darius Enterprises, a very profitable distributor of office furniture to local businesses. A recent economic downturn has created an extremely tight cash position, and the company has been hurt by the bankruptcy of two key customers.
In late October, anticipating an economic recovery, Franklin began an extensive remodeling of the company’s sales floor. Construction costs, decorating, and equipment purchases are projected to cost $250,000.
Darius has a policy that individual expenditures in excess of $200,000 must be approved by the firm’s board of directors. Franklin, unfortunately, missed the deadline to have the board consider this project at its regular September meeting. Not wanting to wait until the next meeting in December, he subdivided the project in two parts—construction and decorating ($190,000) and equipment purchases ($60,000)—neither of which needed board approval because of the dollar amounts involved.
The project was recently completed and sales have begun to recover. Customers have raved about the new sales area, noting that it is far superior to those of Darius’s competitors.Required:A. Would Franklin’s approach of subdividing the project in two parts have any effect on the company’s financial statements? Briefly explain.
B. Briefly discuss whether Franklin behaved in an ethical manner.
C. Which, if any, of the following standards of conduct would have applicability to Franklin’s conduct: competence, confidentiality, integrity, or credibility? Briefly explain.A. Although some extra processing is involved because of the “separate” projects, the same total costs will be incurred for the same assets. Thus, there is no impact on the financial statements, which serve to summarize financial activity.
B. Franklin behaved in an unethical manner. Even though business is recovering and customers seem more than satisfied with the new sales area, Franklin knowingly bypassed stated company policy. The project is being done in a single phase, and is comprised of construction, decorating, and equipment acquisition. This is really one project; yet his accounting treatment implies otherwise.
C. Two standards are relevant here. Integrity holds that managers refrain from engaging in any conduct that would prejudice the ethical performance of duties. Additionally, credibility recognizes that managers have a responsibility to communicate information fairly and objectively, and disclose all relevant information that could reasonably be expected to influence a user’s understanding of the reports and data presented.

 

AACSB: Ethics
AICPA BB: Industry
AICPA FN: Reporting
Blooms: Analyze
Blooms: Apply
Blooms: Evaluate
Difficulty: 3 Hard
Learning Objective: 01-10 Describe the ethical responsibilities and ethical standards that apply to managerial accounting.
 

 

60. Many professions have adopted a series of ethical standards to provide guidance for their memberships. The Institute of Management Accountants (IMA), for example, has published standards that focus on competence, confidentiality, integrity, and credibility. In light of these standards, consider the three cases that follow.

Case A—Leston Corporation has experienced serious financial difficulties in recent years. John Young, the company’s chief financial officer, has just learned that a major competitor was likely to file for bankruptcy; however, he failed to disclose this information at a board meeting held later that day when a plant closure decision was being discussed. The board evaluated several proposals during the session that focused on improving Leston’s financial position.
Case B—QBX Company manufactures fertilizer from various raw materials, including a raw material know as Felstar. Paul Kelly, the firm’s purchasing manager, purposely acquired a lower grade of Felstar than normal because of a very attractive price. The lower-grade product resulted in increased usage during the manufacturing process but had no effect on the fertilizer’s overall quality. An end-of-period report showed that QBX profited from Kelly’s actions, with the overall savings in purchase price more than offsetting the cost of added consumption.
Case C—Central Distributing has a participative budgeting process, allowing employees to have a say in projected sales targets for the upcoming period. These targets are reflected in a series of performance reports that compare actual sales achieved against targeted amounts. Hillary Baxter submitted very low sales targets because, as she confided in a colleague, “I always want to look good in terms of meeting targets, even if anticipated sales and closures don’t materialize.”

Required:

Evaluate the three cases and determine the ethical issues, if any, that are involved. Cite the IMA’s standards if appropriate.

Case A: Young had an obligation to inform the other board members about the likely bankruptcy, particularly in light of the company’s financial situation and the topics under discussion at the meeting. The information could have affected the board’s thinking on several matters. Two of the IMA standards are relevant here: competence and credibility. Competence notes, in part, that members provide decision-support information that is accurate and timely. Additionally, credibility holds that members disclose all relevant information that could influence a user’s understanding of an analysis. Young’s silence violates both of these ethical standards.
Case B: Kelly did not violate any ethical standards. The acquisition of sub-par material was a sound business decision, particularly since QBX prospered financially and quality of the end product did not suffer.
Case C: Baxter engaged in a somewhat common practice known as padding the budget; nevertheless, one can conclude that such a practice is inconsistent with the ethical standards of credibility and competence. Baxter is not providing full knowledge of the sales situation by setting targets that are purposely low, thus possibly misleading managers who attempt to analyze her performance. Additionally, competence is involved because the information provided in setting the sales targets is inaccurate.

 

AACSB: Ethics
AICPA BB: Industry
AICPA FN: Reporting
Blooms: Evaluate
Difficulty: 3 Hard
Learning Objective: 01-10 Describe the ethical responsibilities and ethical standards that apply to managerial accounting.
 

 

61. Briefly distinguish between managerial accounting and financial accounting. Be sure to comment on the general focus, users, and regulation related to the two fields.

Managerial accounting is concerned with providing information to personnel within an organization so that they can plan, make decisions, evaluate performance, and control operations. There are no rules and regulations associated with this field since the information is intended solely for use within the firm.
Financial accounting, in contrast, focuses on financial statements and other financial reports. This area deals with reporting to groups outside of an organization (e.g., stockholders, lenders, government agencies) so that some assessment of profitability and overall financial health can be made. Given the large number of firms in our economy and the varying level of user sophistication, the field is heavily regulated (by the Financial Accounting Standards Board and, to a lesser degree, by the Securities and Exchange Commission).

 

AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Reporting
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 01-05 Describe the accounting and finance structure in an organization.
 

 

62. Unused or excess capacity is a key component of contemporary management accounting. Define the term “excess capacity” and explain how it would relate to a coffee shop.

Excess capacity is the difference between the amount of a resource supplied and the amount of a resource used at a given output activity level.
A coffee shop may have excess capacity in terms of servers, brewers, and the amount of brewed beverages available to customers.

 

AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Measurement
Blooms: Apply
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 01-08 Explain how investments in capacity affect managerial decision making.
 

 

63. The value chain is a key component of contemporary management accounting. Define the term “value chain” and explain how it would relate to an airline.

The value chain is a set of activities that work together to create value for an organization. With a manufacturer, for instance, activities that range in scope from securing raw materials, to production, to delivery of products will culminate in goods that boost a firm’s bottom-line profitability.
Activities in a value chain for an airline would include reservations and ticketing, maintenance, baggage handling, marketing, customer service, frequent-flyer programs, and, of course, flight operations.

 

AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Risk Analysis
Blooms: Apply
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 01-07 Understand and explain the value chain concept.
 

 

Test Bank 10th-Ed Managerial Accounting Creating Value In A Dynamic Business Environment by Ronald W. Hilton

Test Bank 10th-Ed Managerial Accounting Creating Value In A Dynamic Business Environment by Ronald W. Hilton