Documente Academic
Documente Profesional
Documente Cultură
Chapter 1
Page 1
Schoenebeck
CHAPTER 1
MANAGEMENT ACCOUNTING: INFORMATION THAT CREATES VALUE
TRUE/FALSE
1.
Management accounting gathers short-term, long-term, financial, and nonfinancial
information.
a.
True
b.
False
2.
3.
4.
5.
During the history of management accounting, innovations were developed to address the
decision-making needs of managers.
a.
True
b.
False
6.
A key element in any organizations strategy is to identify its target customers and to deliver
what those target customers want.
a.
True
b.
False
7.
The value proposition has only two elements: cost and quality.
a.
True
b.
False
8.
Quality is the degree of conformance between what the customer is promised and what the
customer receives.
a.
True
b.
False
9.
Recently, the demand for improved management accounting and control information within
manufacturing firms has also occurred in service organizations.
a.
True
b.
False
10.
Recently, the competitive environment for both manufacturing and service companies has
become far more challenging and demanding.
Chapter 1
Page 2
Schoenebeck
a.
b.
True
False
11.
Service companies are very similar to manufacturing companies in may ways, including the
fact that many employees have direct contact with customers.
a.
True
b.
False
12.
13.
14.
Management accounting information allows managers to compare actual and planned costs
and to identify areas and opportunities for process improvement.
a.
True
b.
False
15.
16.
17.
18.
In the late 1990s, little interest or attention was paid to evaluating managements
appropriate governance and strategy choices.
a.
True
b.
False
19.
Chapter 1
Page 3
Schoenebeck
20.
21.
22.
23.
24.
Information is never neutral; just the act of measuring and reporting information affects the
individuals involved.
a.
True
b.
False
25.
Boundary systems are always stated in positive terms that outline maximum standards of
behavior.
a.
True
b.
False
Chapter 1
Page 4
Schoenebeck
MULTIPLE CHOICE
26.
27.
28.
Management accounting:
a.
focuses on estimating future revenues, costs, and other measures to forecast activities
and their results
b.
provides information about the company as a whole
c.
reports information that has occurred in the past that is verifiable and reliable
d.
provides information that is generally available only on a quarterly or annual basis
29.
30.
31.
32.
Chapter 1
Page 5
Schoenebeck
33.
34.
35.
36.
Financial accounting:
a.
focuses on the future and includes activities such as preparing next year's operating
budget
b.
must comply with GAAP (generally accepted accounting principles)
c.
reports include detailed information on the various operating segments of the business
such as product lines or departments
d.
is prepared for the use of department heads and other employees
37.
38.
39.
Historically:
a.
in the beginning of the 20th century, the Guilds kept detailed records of raw materials
and labor costs as evidence of product quality
b.
in medieval England, the basics of modern management accounting emerged with
standards for material use, employee productivity, and budgets
c.
in the late 19th century, railroad managers implemented large and complex costing
systems to compute the cost of different types of freight
d.
from 1400-1600, large and integrated companies such as DuPont and General Motors,
developed ways to measure return on investment
Chapter 1
Page 6
Schoenebeck
40.
In general, it was not until the 1970s that management accounting systems:
a.
were improved because of demands by the FASB and the SEC
b.
stagnated and proved inadequate
c.
started to develop innovations in costing and performance-measurement systems due
to intense pressure from overseas competitors
d.
started to address the decision-making needs of managers
41.
42.
43.
What an organization tries to deliver to customers is called its value proposition, which
includes the elements of:
a.
cost and quality
b.
cost, quality, and functionality and features
c.
cost, quality, functionality and features, and service
d.
cost, quality, functionality and features, service, and industry standards
44.
The price paid by the customer, given the product features and competitors prices, is
referred to as the __________ element of the value proposition.
a.
cost
b.
industry standards
c.
quality
d.
service
45.
The degree of conformance between what the customer is promised and what the customer
receives is referred to as the __________ element of the value proposition.
a.
cost
b.
industry standards
c.
quality
d.
service
46.
The performance of the product, for example, a meal in a restaurant provides the diner with
the level of satisfaction expected for the price paid, is referred to as the __________
element of the value proposition.
a.
functionality and features
b.
industry standards
c.
quality
d.
service
Chapter 1
Page 7
Schoenebeck
47.
How the customer is treated at the time of the purchase is an example of the __________
element of the value proposition.
a.
functionality and features
b.
industry standards
c.
quality
d.
service
48.
49.
Which of the following groups would be LEAST likely to receive detailed management
accounting reports?
a.
stockholders
b.
customer service representatives
c.
production supervisor
d.
vice president of operations
50.
Top executives of a multi-plant firm are LEAST likely to use management accounting
information:
a.
to support decisions that result in long-term consequences
b.
to evaluate the performance of individual plants
c.
for strategic planning
d.
for operational control
51.
52.
53.
Chapter 1
Page 8
Schoenebeck
54.
A quarterly report disclosing declining market share information is MOST useful to:
a.
a front-line employee
b.
the manager of operations
c.
the chief executive officer
d.
the accounting department
55.
A weekly report comparing machine time used to available machine time is information
MOST useful to:
a.
a front-line employee
b.
the manager of operations
c.
the chief executive officer
d.
the accounting department
56.
A daily report on the number of quality units assembled by each employee is information
MOST useful to:
a.
a front-line assembly worker
b.
the accounting department
c.
the chief executive officer
d.
the personnel department
57.
Which of the following would be LEAST helpful for a top manager of a company?
a.
profitability report of the company
b.
information to monitor hourly and daily operations
c.
number of customer complaints
d.
operating expense summary reported by department
58.
59.
Management accounting can play a critical role in the service industry because of all the
following reasons EXCEPT:
a.
firms must be especially sensitive to the timeliness and quality of customer service
b.
many employees have very little contact with customers
c.
customers immediately notice defects and a delay in service
d.
dissatisfied customers may never return
60.
Historically, the NEGLECT of management accounting in the service industry was a result
of:
a.
noncompetitive environments
b.
global customer demands
c.
the switch to free market economies
d.
an influx of higher-quality and lower-priced products from overseas
Chapter 1
Page 9
Schoenebeck
61.
62.
Currently, pressures for improved cost and performance measurements are being felt by:
a.
nonprofit organizations
b.
governmental agencies
c.
profit-seeking enterprises
d.
All of the above are correct.
63.
64.
65.
The return on investment (ROI) performance measure uses __________ to evaluate the
performance of operating divisions.
a.
a single number
b.
four numbers
c.
five numbers
d.
ten numbers
66.
67.
All of the following are true regarding the return on investment (ROI) formula developed at
Dupont EXCEPT that:
a.
it is the sole measure top-management utilizes to evaluate which division should
receive additional capital
b.
it allows companies to have centralized control with decentralized responsibility
c.
it produces a measure of divisional performance
d.
it equals (Operating income/Sales) x (Sales/Investment)
Chapter 1
Page 10
Schoenebeck
Trees
$120,000
$6,000
$100,000
68.
69.
70.
71.
72.
For improving operational efficiencies and customer satisfaction, nonfinancial information is:
a.
critical
b.
helpful
c.
infrequently used
d.
unnecessary
73.
Chapter 1
Page 11
Schoenebeck
74.
75.
76.
77.
78.
Management accountants are MOST likely to feel outside pressure to favorably influence
the numbers favorably when the information is used for:
a.
budgeting
b.
compensation and promotions
c.
continuous improvement
d.
product costing
79.
Fostering a culture of high ethical standards includes all of the following EXCEPT:
a.
following the good example set by senior management
b.
communicating to employees a belief system that inspires and promotes commitment
to the organizations core values
c.
following the general examples set by front-line employees
d.
communicating to all employees a boundary system that states what actions will not be
tolerated
80.
Chapter 1
Page 12
Schoenebeck
CRITICAL THINKING/ESSAY
81.
82.
83.
84.
Describe the value proposition and the elements that comprise it.
85.
86.
What role has the increasingly competitive business environment played in the development
of management accounting?
87.
Describe return on investment (ROI). Why was it developed? When was it developed?
88.
89.
Chapter 1
Page 13
Schoenebeck
CHAPTER 1 SOLUTIONS
MANAGEMENT ACCOUNTING: INFORMATION THAT CREATES VALUE
TRUE/FALSE
MULTIPLE CHOICE
LO1
LO1
LO1
LO1
LO1
1.
2.
3.
4.
5.
a
b
b
a
a
LO1
LO1
LO1
LO1
LO1
26.
27.
28.
29.
30.
d
d
a
d
a
LO3
LO3
LO3
LO3
LO3
56.
57.
58.
59.
60.
a
b
c
b
a
LO2
LO2
LO2
LO3
LO3
6.
7.
8.
9.
10.
a
b
a
a
a
LO1
LO1
LO1
LO1
LO1
31.
32.
33.
34.
35.
d
a
d
b
c
LO3
LO3
LO4
LO4
LO4
61.
62.
63.
64.
65.
d
d
a
d
a
LO3
LO3
LO3
LO3
LO3
11.
12.
13.
14.
15.
b
a
a
a
a
LO1
LO1
LO1
LO1
LO1
36.
37.
38.
39.
40.
b
c
b
c
c
LO4
LO4
LO4
LO4
LO5
66.
67.
68.
69.
70.
c
a
b
a
b
LO4
LO4
LO5
LO5
LO5
16.
17.
18.
19.
20.
b
a
a
b
a
LO2
LO2
LO2
LO2
LO2
41.
42.
43.
44.
45.
c
b
c
a
c
LO5
LO5
LO5
LO6
LO6
71.
72.
73.
74.
75.
b
a
d
a
c
LO5
LO5
LO6
LO6
LO6
21.
22.
23.
24.
25.
b
b
a
a
b
LO2
LO2
LO3
LO3
LO3
46.
47.
48.
49.
50.
a
d
d
a
d
LO6
LO6
LO6
LO6
LO6
76.
77.
78.
79.
80.
d
a
b
c
a
LO3
LO3
LO3
LO3
LO3
51.
52.
53.
54.
55.
c
a
b
c
b
MULTIPLE CHOICE
68.
69.
Chapter 1
Page 14
Schoenebeck
CRITICAL THINKING/ESSAY
LO1
81. Describe management accounting and financial accounting.
Solution: Management accounting provides information to internal decision makers of the
business such as top executives. Its purpose is to help managers predict and evaluate future
results. Reports are generated often and are usually broken down into smaller reporting
divisions such as department or product line. There are no rules to be complied with since
these reports are for internal use only.
Financial accounting provides information to external decision makers such as investors and
creditors. Its purpose is to present a fair picture of the financial condition of the company.
Reports are generated quarterly or annually and report on the company as a whole. The
financial statements must comply with GAAP (generally accepted accounting principles). A
CPA audits, or verifies, that the GAAP are being followed.
LO1
82. What is the purpose of management accounting?
Solution: Management accounting gathers short-term and long-term financial and
nonfinancial information to plan, coordinate, motivate, improve, control, and evaluate
success factors of an organization. Management accounting converts data into usable
information that supports strategic, operational, and control decision making.
LO1
83. Briefly describe how managers make use of management accounting information.
Solution: Managers use accounting information for three broad purposes.
ONE: To plan business operations that includes preparing strategies and budgets and
determining the prices and costs of products and services. A company must know the cost
of each product and service to decide which products to offer and whether to expand or
discontinue product lines.
TWO: To control business operations that includes comparing actual results to the budgeted
results and taking corrective action when needed.
THREE: To evaluate performance.
Chapter 1
Page 15
Schoenebeck
LO2
84. Describe the value proposition and the elements that comprise it.
Solution: The value proposition is what an organization tries to deliver to its target
customers it defines the organizational strategy.
The four elements are cost, quality, functionality and features, and service.
Cost is the price paid by the customer, given the product features and competitors prices.
Quality is the degree of conformance between what the customer is promised and what
the customer receives.
Functionality and features refers to the performance of the product. For example: A meal
in a restaurant provides the diner with the level of satisfaction expected for the price paid.
Service is all of the other elements of the product. For example: How the customer is
treated at the time of the purchase.
LO3
85. Is financial accounting or management accounting more useful to an operations manager?
Why?
Solution: Management accounting is more useful to an operations manager because
management accounting reports operating results by department or unit rather than for the
company as a whole, it includes financial as well as nonfinancial data such as on-time
deliveries and cycle times, and it includes quantitative as well as qualitative data such as the
type of rework that was needed on defective units.
LO3
86. What role has the increasingly competitive business environment played in the development
of management accounting?
Solution: The competitive environment has changed dramatically. There has been a
deregulation movement in North America and Europe during the 1970s and 1980s that
changed the ground rules under which service companies operated. In addition,
organizations encountered severe competition from overseas companies that offered highquality products at low prices. There has been an improvement of operational control
systems such that information is more current and provided more frequently. The nature of
work has changed from controlling to informing. Firms are concerned about continuous
improvement, employee empowerment, and total quality. Nonfinancial information has
become a critical feedback measure. Finally, the focus of many firms is now on measuring
and managing activities.
Chapter 1
Page 16
Schoenebeck
LO4
87. Describe return on investment (ROI). Why was it developed? When was it developed?
Solution: ROI = (operating income / sales) x (sales / investment)
The ROI measure combines a profitability measure (operating income / sales) with a capital
intensity measure (sales / investment) to provide a single measure of departmental and
divisional performance.
ROI was developed in the early decades of the 1900s so that senior managers at multidivisional diversified corporations, such as DuPont and General Motors, could evaluate the
operating performance of their decentralized divisions.
LO5
88. Give two examples of financial information and nonfinancial information.
Solution: Financial information includes amounts that can be expressed in dollar amounts
such as sales, net income, and total assets. It also includes ratios prepared using financial
information such as increase in sales, return-on-sales, and return-on-investment.
Nonfinancial information includes measures that are not expressed in dollar amounts. For
example, nonfinancial measures of customer satisfaction include the number of repeat
customers or ranked estimates of satisfaction levels. Nonfinancial measures of production
quality include percent of on-time deliveries, the number of defects, production yield, and
cycle times.
LO6
89. Discuss the potential behavior implications of performance evaluation.
Solution: As measurements are made on operations and, especially, on individuals and
groups, the behavior of the individuals and groups are affected. People react to the
measurements being made. They will focus on those variables or the behavior being
measured and spend less attention on variables and behavior that are not measured. In
addition, if managers attempt to introduce or redesign cost and performance measurement
systems, people familiar with the previous system will resist. Management accountants must
understand and anticipate the reactions of individuals to information and measurements.
The design and introduction of new measurements and systems must be accompanied with
an analysis of the likely reactions to the innovations.
Chapter 1
Page 17
Schoenebeck