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Exercise 1-1 The Roles of Managers and Management Accountants [LO1]

Choose the term that most appropriately completes the following statements: 1. A position that is directly related to achieving the basic objectives of an organization is called a line position. 2. A diagram that shows how responsibility is divided among managers and shows the formal lines of reporting and communication is called an organization chart . 3. A staff position provides service or assistance to other parts of the organization and does not directly achieve the basic objectives of the organization. 4. The delegation of decision-making authority throughout an organization by allowing managers at various operating levels to make key decisions relating to their area of responsibility is called decentralization . 5. The manager in charge of the accounting department is generally known as the controller .

6. The chief financial officer is the member of the top management team who is responsible for providing timely and relevant data to support planning and control activities and for preparing financial statements for external users.
Worksheet Exercise 1-1 The Roles of Managers and Management Accountants [LO1] Learning Objective: 01-01 Understand the role of management accountants in an organization.

Exercise 1-1 The Roles of Managers and Management Accountants [LO1]

Choose the term that most appropriately completes the following statements: 1. A position that is directly related to achieving the basic objectives of an organization is called a line position. 2. A diagram that shows how responsibility is divided among managers and shows the formal lines of reporting and communication is called an organization chart. 3. A staff position provides service or assistance to other parts of the organization and does not directly achieve the basic objectives of the organization. 4. The delegation of decision-making authority throughout an organization by allowing managers at various operating levels to make key decisions relating to their area of responsibility is called decentralization. 5. The manager in charge of the accounting department is generally known as the controller. 6. The chief financial officer is the member of the top management team who is responsible for providing timely and relevant data to support planning and control activities and for preparing financial statements for external users.

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Exercise 1-2 The Business Environment [LO2]

Choose the term that most appropriately completes each of the following statements: 1. A(n) strategy is a game plan that enables a company to attract customers by distinguishing itself from competitors.

2.

Six sigma is a method that relies on customer feedback and objective data gathering and analysis techniques to drive process improvement. A(n) business process is a series of steps that are followed to carry out some task in a business.

3.

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The system by which a company is directed and controlled is called corporate governance .

5.

The process used by a company to help identify the risks that it faces and to develop responses to those risks so that the company is reasonably assured of meeting its goals is known as enterprise risk management . A manufacturing cell is a work space that takes employees and equipment from departments that were previously separated from one another and places them side-by-side. The various groups of people, such as employees, customers, and suppliers, whose interests are tied to a company's performance are called stakeholders . A(n) constraint is anything that prevents an organization or individual from getting more of what it wants.

6.

7.

8.

9.

Increasing the rate of output of a(n) nonconstraint profits.

as the result of an improvement effort is unlikely to have much effect on

10. A(n) value chain consists of business functions that add value to a company's products and services such as research and development, product design, manufacturing, marketing, distribution, and customer service. 11. Corporate social responsibility decisions. is a concept whereby organizations consider the needs of all stakeholders when making

12. A management approach that coordinates business processes across companies to better serve end consumers is known as supply chain management . 13. The lean thinking model is a five-step management approach that organizes resources around the flow of business processes and that pulls units through those processes in response to customer orders. 14. A company can only succeed if it creates a reason for customers to choose it over a competitor; in short, a customer value proposition . 15. The Sarbanes-Oxley Act of 2002 was enacted to protect the interests of those who invest in publicly traded companies.

16.

A(n) non-value-added activity

consumes resources but does not add value for which customers are willing to pay.

17. The management approach that emphasizes the importance of managing constraints is known as the theory of constraints

Worksheet

Exercise 1-2 The Business Environment [LO2]

Learning Objective: 01-02 Understand the basic concepts underlying Lean Production, the Theory of Constraints (TOC), and Six Sigma.

Exercise 1-2 The Business Environment [LO2]

Choose the term that most appropriately completes each of the following statements: 1. A(n) strategy is a game plan that enables a company to attract customers by distinguishing itself from competitors.

2.

Six sigma is a method that relies on customer feedback and objective data gathering and analysis techniques to drive process improvement. A(n) business process is a series of steps that are followed to carry out some task in a business.

3.

4.

The system by which a company is directed and controlled is called corporate governance.

5.

The process used by a company to help identify the risks that it faces and to develop responses to those risks so that the company is reasonably assured of meeting its goals is known as enterprise risk management. A manufacturing cell is a work space that takes employees and equipment from departments that were previously separated from

6.

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one another and places them side-by-side. 7.

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The various groups of people, such as employees, customers, and suppliers, whose interests are tied to a company's performance are called stakeholders. A(n) constraint is anything that prevents an organization or individual from getting more of what it wants.

8.

9.

Increasing the rate of output of a(n) nonconstraint as the result of an improvement effort is unlikely to have much effect on profits.

10. A(n) value chain consists of business functions that add value to a company's products and services such as research and development, product design, manufacturing, marketing, distribution, and customer service. 11. Corporate social responsibility is a concept whereby organizations consider the needs of all stakeholders when making decisions.

12. A management approach that coordinates business processes across companies to better serve end consumers is known as supply chain management. 13. The lean thinking model is a five-step management approach that organizes resources around the flow of business processes and that pulls units through those processes in response to customer orders. 14. A company can only succeed if it creates a reason for customers to choose it over a competitor; in short, a customer value proposition. 15. The Sarbanes-Oxley Act of 2002 was enacted to protect the interests of those who invest in publicly traded companies.

16.

A(n) non-value-added activity consumes resources but does not add value for which customers are willing to pay.

17. The management approach that emphasizes the importance of managing constraints is known as the theory of constraints.

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Exercise 1-3 Ethics in Business [LO3]

Mary Karston was hired by a popular fast-food restaurant as an order-taker and cashier. Shortly after taking the job, she was shocked to overhear an employee bragging to a friend about short-changing customers. She confronted the employee who then snapped back: "Mind your own business. Besides, everyone does it and the customers never miss the money." Mary didn't know how to respond to this aggressive stance. Required: What would be the practical consequences on the fast-food industry and on consumers if cashiers generally shortchanged customers at every opportunity? (Select all that apply.) If cashiers routinely short-changed customers whenever the opportunity presented itself, most of us would not count our change before leaving the counter. Dishonesty on the part of cashiers can have impact on other employees of the restaurant. Customers do not mind being short-changed by cashiers because everyone does it.

The net result of widespread dishonesty would be a shrunken economy with a lower growth.

If cashiers routinely shortchanged customers whenever the opportunity presented itself, most of us would be careful to count our change before leaving the counter. Imagine what effect this would have on the line at your favorite fast-food restaurant. How would you like to wait in line while each and every customer laboriously counts out his or her change? Additionally, if you can't trust the cashiers to give honest change, can you trust the cooks to take the time to follow health precautions such as washing their hands? If you can't trust anyone at the restaurant would you even want to eat out? Generally, when we buy goods and services in the free market, we assume we are buying from people who have a certain level of ethical standards. If we could not trust people to maintain those standards, we would be reluctant to buy. The net result of widespread dishonesty would be a shrunken economy with a lower growth rate and fewer goods and services for sale at a lower overall level of quality. If cashiers routinely shortchanged customers whenever the opportunity presented itself, most of us would be careful to count our change before leaving the counter. Imagine what effect this would have on the line at your favorite fast-food restaurant. How would you like to wait in line while each and every customer laboriously counts out his or her change? Additionally, if you can't trust the cashiers to give honest change, can you trust the cooks to take the time to follow health precautions such as washing their hands? If you can't trust anyone at the restaurant would you even want to eat out? Generally, when we buy goods and services in the free market, we assume we are buying from people who have a certain level of ethical standards. If we could not trust people to maintain those standards, we would be reluctant to buy. The net result of widespread dishonesty would be a shrunken economy with a lower growth rate and fewer goods and services for sale at a lower overall level of quality. If cashiers routinely shortchanged customers whenever the opportunity presented itself, most of us would be careful to count our change before leaving the counter. Imagine what effect this would have on the line at your favorite fast-food restaurant. How would you like to wait in line while each and every customer laboriously counts out his or her change? Additionally, if you can't trust the cashiers to give honest change, can you trust the cooks to take the time to follow health precautions such as washing their hands? If you can't trust anyone at the restaurant would you even want to eat out? Generally, when we buy goods and services in the free market, we assume we are buying from people who have a certain level of ethical standards. If we could not trust people to maintain those standards, we would be reluctant to buy. The net result of widespread dishonesty would be a shrunken economy with a lower growth rate and fewer goods and services for sale at a lower overall level of quality. If cashiers routinely shortchanged customers whenever the opportunity presented itself, most of us would be careful to count our change before leaving the counter. Imagine what effect this would have on the line at your favorite fast-food restaurant. How would you like to wait in line while each and every customer laboriously counts out his or her change? Additionally, if you can't trust the cashiers to give honest change, can you trust the cooks to take the time to follow health precautions such as washing their hands? If you can't trust anyone at the restaurant would you even want to eat out? Generally, when we buy goods and services in the free market, we assume we are buying from people who have a certain level of ethical standards. If we could not trust people to maintain those standards, we would be reluctant to buy. The net result of widespread dishonesty would be a shrunken economy with a lower growth rate and fewer goods and services for sale at a lower overall level of quality.
Check All That Apply Exercise 1-3 Ethics in Business [LO3] Learning Objective: 01-03 Understand the importance of upholding ethical standards.

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Problem 1-4 Ethics and the Manager [LO3]

[The following information applies to the questions displayed below.] Richmond, Inc., operates a chain of 44 department stores. Two years ago, the board of directors of Richmond approved a large-scale remodeling of its stores to attract a more upscale clientele. Before finalizing these plans, two stores were remodeled as a test. Linda Perlman, assistant controller, was asked to oversee the financial reporting for these test stores, and she and other management personnel were offered bonuses based on the sales growth and profitability of these stores. While completing the financial reports, Perlman discovered a sizable inventory of outdated goods that should have been discounted for sale or returned to the manufacturer. She discussed the situation with her management colleagues; the consensus was to ignore reporting this inventory as obsolete because reporting it would diminish the financial results and their bonuses.
Section Break Prob lem 1-4 Ethics and the Manager [LO3]

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Problem 1-4 Requirement 1

Requirement 1: According to the IMA's Statement of Ethical Professional Practice, would it be ethical for Perlman not to report the inventory as obsolete?
Yes No

Failure to report the obsolete nature of the inventory would violate the IMA's Statement of Ethical Professional Practice as follows: Competence Perform duties in accordance with relevant technical standards. Generally accepted accounting principles (GAAP) require the write-down of obsolete inventory. Prepare decision support information that is accurate. Integrity Mitigate actual conflicts of interest and avoid apparent conflicts of interest. Refrain from engaging in any conduct that would prejudice carrying out duties ethically. Abstain from activities that would discredit the profession. Members of the management team, of which Perlman is a part, are responsible for both operations and recording the results of operations. Because the team will benefit from a bonus, increasing earnings by ignoring the obsolete inventory is clearly a conflict of interest. Furthermore, such behavior is a discredit to the profession. Credibility Communicate information fairly and objectively. Disclose all relevant information. Hiding the obsolete inventory impairs the objectivity and relevance of financial statements.
Yes / No Prob lem 1-4 Requirement 1 Learning Objective: 01-03 Understand the importance of upholding ethical standards.

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Problem 1-4 Requirement 2

Requirement 2: Would it be easy for Perlman to take the ethical action in this situation?
Yes No

As discussed above, the ethical course of action would be for Perlman to insist on writing down the obsolete inventory. This would not, however, be an easy thing to do. Apart from adversely affecting her own compensation, the ethical action may anger her colleagues and make her very unpopular. Taking the ethical action would require considerable courage and self-assurance.
Yes / No Prob lem 1-4 Requirement 2 Learning Objective: 01-03 Understand the importance of upholding ethical standards.

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Problem 1-5 Preparing an Organization Chart [LO1]

[The following information applies to the questions displayed below.] Bristow University is a large private school located in the Midwest. The university is headed by a president who has five vice presidents reporting to him. These vice presidents are responsible for, respectively, auxiliary services, admissions and records, academics, financial services (controller), and the physical plant. In addition, the university has managers over several areas who report to these vice presidents. These include managers over central purchasing, the university press, and the university bookstore, all of whom report to the vice president for auxiliary services; managers over computer services and over accounting and finance, who report to the vice president for financial services; and managers over grounds and custodial services and over plant and maintenance, who report to the vice president for physical plant. The university has four collegesbusiness, humanities, fine arts, and engineering and quantitative methodsand a law school. Each of these units has a dean who is responsible to the academic vice president. Each college has several departments.
Section Break Prob lem 1-5 Preparing an Organization Chart [LO1]

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Problem 1-5 Requirements 1 and 2

Requirements 1 and 2: Select whether each of these positions is a line position or a staff position. a. b. c. d. University President Academic Vice President Managers reporting to Vice Presidents Deans of the four colleges Line position Line position Staff position Line position

Worksheet

Prob lem 1-5 Requirements 1 and 2

Learning Objective: 01-01 Understand the role of management accountants in an organization.

Problem 1-5 Requirements 1 and 2

Requirements 1 and 2: Select whether each of these positions is a line position or a staff position. a. b. c. d. University President Academic Vice President Managers reporting to Vice Presidents Deans of the four colleges Line position Line position Staff position Line position

Explanation:

Line positions include the university president, academic vice-president, the deans of the four colleges, and the dean of the law school. In addition, the department heads (as well as the faculty) are in line positions. The reason is that their positions are directly related to the basic purpose of the university, which is education. All other positions on the organization chart are staff positions. The reason is that these positions are indirectly related to the educational process, and exist only to provide service or support to the line positions.

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Problem 1-5 Requirement 3

Requirement 3: All positions would have a need for accounting information of some type.
True False

All positions would have need for accounting information of some type. For example, the manager of central purchasing would need to know the level of current inventories and budgeted allowances in various areas before doing any purchasing; the vice-president for admissions and records would need to know the status of scholarship funds as students are admitted to the university; the dean of the business college would need to know his/her budget allowances in various areas, as well as information on cost per student credit hour; and so forth.
True / False Prob lem 1-5 Requirement 3 Learning Objective: 01-01 Understand the role of management accountants in an organization.

Problem 1-7 Ethics in Business [LO3]

[The following information applies to the questions displayed below.] Consumers and attorney generals in more than 40 states accused a prominent nationwide chain of auto repair shops of misleading customers and selling them unnecessary parts and services, from brake jobs to front-end alignments. Lynn Sharpe Paine reported the situation as follows in "Managing for Organizational Integrity," Harvard Business Review, Volume 72 Issue 3: In the face of declining revenues, shrinking market share, and an increasingly competitive market . . . management attempted to spur performance of its auto centers. . . . The automotive service advisers were given product-specific sales quotassell so many springs, shock absorbers, alignments, or brake jobs per shiftand paid a commission based on sales. . . . Failure to meet quotas could lead to a transfer or a reduction in work hours. Some employees spoke of the "pressure, pressure, pressure" to bring in sales. This pressure-cooker atmosphere created conditions under which employees felt that the only way to satisfy top management was by selling products and services to customers that they didn't really need. Suppose all automotive repair businesses routinely followed the practice of attempting to sell customers unnecessary parts and services.
Section Break Prob lem 1-7 Ethics in Business [LO3]

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Problem 1-7 Requirement 1

Requirement 1: Which of the following statement(s) is true? (Select all that apply.) If all automotive service shops routinely tried to sell parts and services to customers that they didn't really need, most customers would eventually figure this out. If all automotive service shops routinely tried to sell parts and services to customers that they didn't really need, the customers would not be able to figure this out. Customers would then be reluctant to accept the word of the service representative even when there is a legitimate problem. Customers would accept the word of the service representative even when there is no legitimate problem. If all automotive service shops routinely tried to sell parts and services to customers that they didn't really need, most customers would eventually figure this out. They would then be reluctant to accept the word of the service representative that a particular problem needs to be correctedeven when there is a legitimate problem. Either the work would not be done, or customers would learn to diagnose and repair problems themselves, or customers would hire an independent expert to verify that the work is really needed. All three of these alternatives impose costs and hassles on customers. If all automotive service shops routinely tried to sell parts and services to customers that they didn't really need, most customers would eventually figure this out. They would then be reluctant to accept the word of the service representative that a particular problem needs to be correctedeven when there is a legitimate problem. Either the work would not be done, or customers would learn to diagnose and repair problems themselves, or customers would hire an independent expert to verify that the work is really needed. All three of these alternatives impose costs and hassles on customers. If all automotive service shops routinely tried to sell parts and services to customers that they didn't really need, most customers would eventually figure this out. They would then be reluctant to accept the word of the service representative that a particular problem needs to be correctedeven when there is a legitimate problem. Either the work would not be done, or customers would learn to diagnose and repair problems themselves, or customers would hire an independent expert to verify that the work is really needed. All three of these alternatives impose costs and hassles on customers. If all automotive service shops routinely tried to sell parts and services to customers that they didn't really need, most customers would eventually figure this out. They would then be reluctant to accept the word of the service representative that a particular problem needs to be correctedeven when there is a legitimate problem. Either the work would not be done, or customers would learn to diagnose and repair problems themselves, or customers would hire an independent expert to verify that the work is really needed. All three of these alternatives impose costs and hassles on customers.
Check All That Apply Prob lem 1-7 Requirement 1 Learning Objective: 01-03 Understand the importance of upholding ethical standards.

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Problem 1-7 Requirement 2

Requirement 2: Will this behavior probably affect profits and employment in the automotive service industry?
Yes No

As argued above, if customers could not trust their service representatives, they would be reluctant to follow the service representative's advice. They would be inclined not to authorize work even when it is really necessary. And, more customers would learn to do automotive repairs and maintenance themselves. Moreover, customers would be unwilling to pay as much for work that is done because customers would have reason to believe that the work may be unnecessary. These two effects would reduce demand for automotive repair services. The reduced demand would reduce employment in the industry and would lead to lower overall profits.
Yes / No Prob lem 1-7 Requirement 2 Learning Objective: 01-03 Understand the importance of upholding ethical standards.

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