Search This Blog

Loading...

Solutions Manual Test Bank Cost Accounting A Managerial Emphasis 13e Charles T. Horngren

Solutions Manual Test Bank Cost Accounting A Managerial Emphasis 13e Charles T. Horngren

Solutions Manual + Test Bank -- $35  Buy Now

Click here download the sample chapter 5.

* Contact us if you need help.


Sample chapter:

CHAPTER 1 THE ACCOUNTANT’S ROLE IN THE ORGANIZATION

See the front matter of this Solutions Manual for suggestions regarding your choices of assignment material for each chapter.

1-1 Management accounting measures, analyzes and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization. It focuses on internal reporting and is not restricted by generally accepted accounting principles (GAAP).
Financial accounting focuses on reporting to external parties such as investors, government agencies, and banks. It measures and records business transactions and provides financial statements that are based on generally accepted accounting principles (GAAP).
Other differences include (1) management accounting emphasizes the future (not the past), and (2) management accounting influences the behavior of managers and other employees (rather than primarily reporting economic events).

1-2 Financial accounting is constrained by generally accepted accounting principles. Management accounting is not restricted to these principles. The result is that
management accounting allows managers to charge interest on owners’ capital to help judge a division’s performance, even though such a charge is not allowed under GAAP,
management accounting can include assets or liabilities (such as “brand names” developed internally) not recognized under GAAP, and
management accounting can use asset or liability measurement rules (such as present values or resale prices) not permitted under GAAP.

1-3 Strategic cost management describes cost management that specifically focuses on strategic issues. Management accountants help formulate strategy by helping managers answer questions such as:
Who are our most important customers, and how do we deliver value to them? For example, after Amazon.com’s success in selling books online, Barnes and Noble developed the capabilities to sell online by building its information and technology infrastructure.
What substitute products exist in the marketplace, and how do they differ from our product in terms of price and quality? For example, Hewlett-Packard designs new printers after comparing the quality, price, and functionality of its printers to other printers in the marketplace.
What is our most critical capability? Is it technology, production, or marketing? How can we leverage it for new strategic initiatives? For example, Kellogg Company uses the reputation of its brand to introduce new cereals.
Will adequate cash be available to fund the strategy, or will additional funds need to be raised? For example, Proctor & Gamble issued new debt and equity to fund its strategic acquisition of Gillette.


1-4 The business functions in the value chain are
Research and development—generating and experimenting with ideas related to new products, services, or processes.
Design of products, services, and processes—the detailed planning and engineering of products, services, or processes.
Production—acquiring, coordinating, and assembling resources to produce a product or deliver a service.
Marketing—promoting and selling products or services to customers or prospective customers.
Distribution—delivering products or services to customers.
Customer service—providing after-sale support to customers.

1-5 Supply chain describes the flow of goods, services, and information from the initial sources of materials and services to the delivery of products to consumers, regardless of whether those activities occur in the same organization or in other organizations.
Cost management is most effective when it integrates and coordinates activities across all companies in the supply chain as well as across each business function in an individual company’s value chain. Attempts are made to restructure all cost areas to be more cost-effective.

1-6 “Management accounting deals only with costs.” This statement is misleading at best, and wrong at worst. Management accounting measures, analyzes, and reports financial and non-financial information that helps managers define the organization’s goals, and make decisions to fulfill them. Management accounting also analyzes revenues from products and customers in order to assess product and customer profitability. Therefore, while management accounting does use cost information, it is only a part of the organization’s information recorded and analyzed by management accountants.

1-7 Management accountants can help improve quality and achieve timely product deliveries by recording and reporting an organization’s current quality and timeliness levels and by analyzing and evaluating the costs and benefits—both financial and non-financial—of new quality initiatives such as TQM, relieving bottleneck constraints or providing faster customer service.

1-8 The five-step decision-making process is (1) identify the problem and uncertainties (2) obtain information (3) make predictions about the future (4) make decisions by choosing among alternatives and (5) implement the decision, evaluate performance and learn.

1-9 Planning decisions focus on (a) selecting organization goals, predicting results under various alternative ways of achieving those goals, deciding how to attain the desired goals, and (b) communicating the goals and how to attain them to the entire organization.
Control decisions focus on (a) taking actions that implement the planning decisions, and (b) deciding how to evaluate performance and providing feedback and learning to help future decision making.

1-10 The three guidelines for management accountants are
1. Employ a cost-benefit approach.
2. Recognize behavioral and technical considerations.
3. Apply the notion of “different costs for different purposes”.
1-11 Agree. A successful management accountant requires general business skills (such as understanding the strategy of an organization) and people skills (such as motivating other team members) as well as technical skills (such as computer knowledge, calculating costs of products, and supporting planning and control decisions).

1-12 The new controller could reply in one or more of the following ways:
(a) Demonstrate to the plant manager how he or she could make better decisions if the plant controller was viewed as a resource rather than a deadweight. In a related way, the plant controller could show how the plant manager’s time and resources could be saved by viewing the new plant controller as a team member.
(b) Demonstrate to the plant manager a good knowledge of the technical aspects of the plant. This approach may involve doing background reading. It certainly will involve spending much time on the plant floor speaking to plant personnel.
(c) Show the plant manager examples of the new plant controller’s past successes in working with line managers in other plants. Examples could include
assistance in preparing the budget,
assistance in analyzing problem situations and evaluating financial and nonfinancial aspects of different alternatives, and
assistance in submitting capital budget requests.
(d) Seek assistance from the corporate controller to highlight to the plant manager the importance of many tasks undertaken by the new plant controller. This approach is a last resort but may be necessary in some cases.

1-13 IMA stands for the Institute of Management Accountants. It is the largest association of management accountants in the United States. The CMA (Certified Management Accountant) is the professional designation for management accountants and financial executives. It demonstrates that the holder has met the admission criteria and demonstrated the competency of management accounting knowledge required by the IMA.

1-14 The Institute of Management Accountants (IMA) sets standards of ethical conduct for management accountants in the following areas:
Competence
Confidentiality
Integrity
Credibility

1-15 Steps to take when established written policies provide insufficient guidance are
(a) Discuss the problem with the immediate superior (except when it appears that the superior is involved).
(b) Clarify relevant ethical issues by confidential discussion with an IMA Ethics Counselor or other impartial advisor.
(c) Consult your own attorney as to legal obligations and rights concerning the ethical conflicts.


1-16 (15 min.) Value chain and classification of costs, computer company.

Cost Item Value Chain Business Function
a.
b.
c.
d.
e.
f.

g.
h. Production
Distribution
Design of products, services or processes
Research and Development
Customer Service or Marketing
Design of products, services or processes
(or Research and Development)
Marketing
Production

1-17 (15 min.) Value chain and classification of costs, manufacturing company.

Cost Item Value Chain Business Function
a.
b.
c.
d.
e.
f.
g.
h. Design of products, services or processes
Marketing
Customer Service
Research and Development
Marketing
Production
Marketing
Distribution

1-18 (15 min.) Value chain and classification of costs, fast food restaurant.

Cost Item Value Chain Business Function
a.
b.
c.
d.
e.
f.
          g.
h. Production
Distribution
Marketing
Marketing
Marketing
Production
Design of products, services or processes
Customer service

1-19 (15 min.) Value chain, supply chain, and key success factors.

Change in
Management Accounting
Key Theme
a.
b.
c.
d.
e. Value-chain analysis
Key success factors (cost and quality)
Key success factors (cost)
Supply-chain analysis
Key success factors (time)
1-20 (10–15 min.) Planning and control decisions.

Action Decision
a.
b.
c.
d.
e. Planning
Control
Control
Planning
Planning

1-21 (15 min.) Five-step decision-making process, manufacturing.

Action Step in Decision-Making Process
a.
b.
c.
d.
          e.
f.
          g.
          Obtain information
Make predictions about the future
Identify the problem and uncertainties
Implement the decision, evaluate performance, and learn
Make predictions about the future
Make decisions by choosing among alternatives
Obtain information

1-22 (15 min.) Five-step decision-making process, service firm.

Action Step in Decision-Making Process
a.
b.
c.
d.
          e.
f.
          g.
. Obtain information
Identify the problem and uncertainties
Make predictions about the future
Implement the decision, evaluate performance, and learn
Make predictions about the future
Obtain information
Make decisions by choosing among alternatives

1-23 (10–15 min.) Professional ethics and reporting division performance.

1. Wiggin’s ethical responsibilities are well summarized in the IMA’s “Standards of Ethical Conduct for Management Accountants” (Exhibit 1-7 of text). Areas of ethical responsibility include the following:

competence
confidentiality
integrity
credibility


The ethical standards related to Wiggin’s current dilemma are integrity, competence and credibility. Using the integrity standard, Wiggin should carry out duties ethically and communicate unfavorable as well as favorable information and professional judgments or opinions. Competence demands that Wiggin perform her professional duties in accordance with relevant laws, regulations, and technical standards. Credibility requires that Wiggin report information fairly and objectively. Wiggin should refuse to book the $425,000 of sales until the goods are shipped. Both financial accounting and management accounting principles maintain that sales are not complete until the title is transferred to the buyer.

2. Wiggin should refuse to follow Thibeault’s orders. If Thibeault persists, the incident should be reported to the corporate controller. Support for line management should be wholehearted, but it should not require unethical conduct.

1-24 (15 min.) Planning and control decisions, Internet company.

1. Planning decisions
a. Decision to raise monthly subscription fee
c. Decision to upgrade content of online services (later decision to inform subscribers and upgrade online services is an implementation part of control)
e. Decision to decrease monthly subscription fee

Control decisions
b. Decision to inform existing subscribers about the rate of increase—an implementation part of control decisions
d. Dismissal of VP of Marketing—performance evaluation and feedback aspect of control decisions

2. Other planning decisions that may be made at WebNews.com: decision to raise or lower advertising fees; decision to charge a fee from on-line retailers when customers click-through from WebNews.com to the retailers’ websites.
Other control decisions that may be made at WebNews.com: evaluating how customers like the new format for the weather information, working with an outside vendor to redesign the website, and evaluating whether the waiting time for customers to access the website has been reduced.


1-25 (20 min.) Strategic decisions and management accounting.

1. The strategies the companies are following in each case are:
      a.
      b.
      c.
      d. Low price strategy
Differentiated product strategy
Low price strategy
Differentiated product strategy

2. Examples of information the management accountant can provide for each strategic decision follow.
      a.
   


   

      b.
   



   
      c.
   




      d. Cost to manufacture and sell the line of cutlery
Productivity, efficiency and cost advantages relative to competition
Prices of competitive lines of cutlery
Sensitivity of target customers to price and quality
The production capacity of Camilla Cutler and its competitors

Cost to develop, produce and sell new window blinds
Premium price that customers would be willing to pay due to product uniqueness
Price of basic window blinds
Price of closest competitive window blinds
Cash needed to develop, produce and sell new window blinds

Cost of producing the chain “store-brand” vacuum cleaners
Productivity, efficiency and cost advantages relative to competition
Prices of competitive products
Sensitivity of target customers to price and quality
How the market for vacuum cleaners is growing

Cost to produce and sell new line of gourmet muffins
Premium price that customers would be willing to pay due to product uniqueness
Price of basic muffin
Price of closest competitive product

1-26 (15 min.) Management accounting guidelines.

1. Cost-benefit approach
2. Behavioral and technical considerations
3. Different costs for different purposes
4. Cost-benefit approach
5. Behavioral and technical considerations
6. Cost-benefit approach
7. Behavioral and technical considerations
8. Different costs for different purposes
9. Behavioral and technical considerations


1-27 (15 min.) Role of controller, role of chief financial officer.
1.
Activity Controller CFO
Managing accounts receivable X
Communicating with investors X
Strategic review of different lines of businesses X
Budgeting funds for a plant upgrade X
Managing the company’s supplier credit policy X
Negotiating fees with auditors X
Assessing profitability of various products X
Evaluating the costs and benefits of a new product design X

2. As CFO, Arabella Lundquist will be interacting much more with the senior management of the company, the board of directors, and the external financial community. Any experience she can get with these aspects will help her in her new role as CFO. Arabella Lundquist can be better positioned for her new role as CFO by participating in strategy discussions with senior management, by preparing the external investor communications and press releases under the guidance of the current CFO, by attending courses that focus on the interaction and negotiations between the various business functions and, either formally or on the job, getting training in issues related to investments and corporate finance.

1-28 (30 min.) Software procurement decisions, ethics.

1. Michael faces an ethical problem. The trip appears to be a gift which could influence his purchase decision. The ethical standard of integrity requires Michaels to refuse the gift. Companies with “codes of conduct” frequently have a “supplier clause” that prohibits their employees from accepting “material” (in some cases, any) gifts from suppliers. The motivations include
(a) Integrity/conflict of interest. Suppose Michaels recommends that a Horizon 1-2-3 product should subsequently be purchased by Fiesta. This recommendation could be because he felt obligated to them as his trip to the Cancún conference was fully paid by Horizon.
(b) The appearance of a conflict of interest.  Even if the Horizon 1-2-3 product is the superior one at that time, other suppliers likely will have a different opinion. They may believe that the way to sell products to Fiesta is via “fully-paid junkets to resorts.” Those not wanting to do business this way may downplay future business activities with Fiesta even though Fiesta could gain much from such activities.

Some executives view the meeting as “suspect” from the start given the Caribbean location and its “rest and recreation” tone.

2. Fiesta should not allow executives to attend user meetings while negotiating with other vendors about a purchase decision. The payment of expenses for the trip constitutes a gift that could appear to influence their purchase decision.


Pros of attending user meeting
(a) Opportunity to learn more about Horizon’s software products.
(b) Opportunity to interact with other possible purchasers and get their opinions.
(c) Opportunity to influence the future product development plans of Horizon in a way that will benefit Fiesta. An example is Horizon subsequently developing software modules tailored to food product companies.
(d) Saves Fiesta money. Visiting suppliers and their customers typically cost money, whereas Horizon is paying for the Cancún conference.

Cons of Attending
(a) The ethical issues raised in requirement 1.
(b) Negative morale effects on other Fiesta employees who do not get to attend the Cancún conference. These employees may reduce their trust and respect for Michaels’s judgment, arguing he has been on a “supplier-paid vacation.”

Conditions on Attending that Fiesta Might Impose
(a) Sizable part of that time in Cancún has to be devoted to business rather than recreation.
(b) Decision on which Fiesta executive attends is not made by the person who attends (this reduces the appearance of a conflict of interest).
(c) Person attending (Michaels) does not have final say on purchase decision (this reduces the appearance of a conflict of interest).
(d) Fiesta executives go only when a new major purchase is being contemplated (to avoid the conference becoming a regular “vacation”).
A Conference Board publication on Corporate Ethics asked executives about a comparable situation. Following are the results:

76% said Fiesta and Michaels face an ethical consideration in deciding whether to attend.
71% said Michaels should not attend, as the payment of expenses is a “gift” within the meaning of a credible corporate ethics policy.

3. The company does not need its own code of ethics. They can use the code of ethics developed by the IMA.

Pros of having a written code
The Conference Board outlines the following reasons why companies adopt codes of ethics:

(a) Signals commitment of senior management to ethics.
(b) Promotes public trust in the credibility of the company and its employees.
(c) Signals the managerial professionalism of its employees.
(d) Provides guidance to employees as to how difficult problems are to be handled. If adhered to, employees will avoid many actions that are unethical or appear to be unethical.
(e) Drafting of the policy (and its redrafting in the light of ambiguities) can assist management in anticipating and preparing for ethical issues not yet encountered.

Cons of having a written code
(a) Can give appearance that all issues have been covered. Issues not covered may appear to be “acceptable” even when they are not.
(b) Can constrain the entrepreneurial activities of employees. Forces people to always “behave by the book.”
(c) Cost of developing code can be “high” if it consumes a lot of employee time.

1-29 (30–40 min.) Professional ethics and end-of-year actions.

1. The possible motivations for the air conditioning division wanting to take end-of-year actions include:
(a) Management incentives. Nations Appliance may have a division bonus scheme based on one-year reported division earnings. Efforts to front-end revenue into the current year or transfer costs into the next year can increase this bonus.
(b) Promotion opportunities and job security. Top management of Nations Appliance likely will view those division managers that deliver high reported earnings growth rates as being the best prospects for promotion. Division managers who deliver “unwelcome surprises” may be viewed as less capable.
(c) Retain division autonomy. If top management of Nations Appliance adopts a “management by exception” approach, divisions that report sharp reductions in their earnings growth rates may attract a sizable increase in top management supervision.

2. The “Standards of Ethical Conduct . . . ” require management accountants to
Perform professional duties in accordance with relevant laws, regulations, and technical standards.
Refrain from engaging in any conduct that would prejudice carrying out duties ethically.
Communicate information fairly and objectively.

Several of the “end-of-year actions” clearly are in conflict with these requirements and should be viewed as unacceptable by Malonson.
(b) The fiscal year-end should be closed on midnight of December 31. “Extending” the close falsely reports next year’s sales as this year’s sales.
(c) Altering shipping dates is falsification of the accounting reports.
(f) Advertisements run in December should be charged to the current year. The advertising agency is facilitating falsification of the accounting records.

The other “end-of-year actions” occur in many organizations and fall into the “gray” to “acceptable” area. However, much depends on the circumstances surrounding each one, such as the following:
(a) If the independent contractor does not do maintenance work in December, there is no transaction regarding maintenance to record.  The responsibility for ensuring that assembly line equipment is well maintained is that of the plant manager. The division controller probably can do little more than observe the absence of a December maintenance charge.
(d) In many organizations, sales are heavily concentrated in the final weeks of the fiscal year-end. If the 5% bonus is approved by the division marketing manager, the division controller can do little more than observe the extra bonus paid in December.
(e) If newspaper, television, and Internet ads are reduced in December, the advertising cost in December will be reduced. There is no record falsification here.
(g) Much depends on the means of “persuading” cosignees to accept the merchandise. For example, if an under-the-table payment is involved, or if cosignees are pressured to accept merchandise, it is clearly unethical. If, however, the cosignee receives no extra consideration and willingly agrees to accept the assignment because it sees potential sales opportunities in December, the transaction appears ethical.

Each of the (a), (d), (e), and (g) “end-of-year actions” may well disadvantage Nations Appliance in the long run. For example, lack of routine maintenance may lead to subsequent equipment failure. The divisional controller is well advised to raise such issues in meetings with the division president. However, if Nations Appliance has a rigid set of line/staff distinctions, the division president is the one who bears primary responsibility for justifying division actions to senior corporate officers.

3. If Malonson believes that Patterson wants him to engage in unethical behavior, he should first directly raise her concerns with Patterson. If Patterson is unwilling to change her request, Malonson should discuss his concerns with the Corporate Controller of Nations Appliance. He could also initiate a confidential discussion with an IMA Ethics Counselor, other impartial adviser, or his own attorney. Malonson also may well ask for a transfer from the air conditioning division if he perceives Patterson is unwilling to listen to pressure brought by the Corporate Controller, CFO, or even President of Nations Appliance.  In the extreme, he may want to resign if the corporate culture of Nations Appliance is to reward division managers who take “end-of-year actions” that Malonson views as unethical and possibly illegal. It was precisely actions along the lines of (b), (c), and (f) that caused Betty Vinson, an accountant at WorldCom to be indicted for falsifying WorldCom’s books and misleading investors.

1-30 (30 min.) Professional ethics and earnings management.

1. The possible motivations for Harvest Day Corporation’s CEO to “manage” earnings include
(a) Manage the stock price.  Harvest Day’s CEO wants to meet the forecasted earnings number of $1.34 per share because the CEO believes that the stock price will drop if actual earnings fall short of the forecast .
(b) Job security.  The CEO may be concerned that the Board of Directors may have a poor view of him if he delivers “unwelcome surprises”.  Depending on how much the stock falls, they may even consider dismissing him.
(c) Management incentives.  The bonuses of top management and the CEO may be based on earnings.  If earnings decrease, smaller or no bonuses may be paid.  If top management and the CEO have stock options, the value of these options will be adversely affected if the stock price falls.

2. The “Standards for Ethical Conduct…” requires management accountants to
Perform professional duties in accordance with relevant laws, regulations, and
technical standards.
Refrain from engaging in any conduct that would prejudice carrying out duties ethically.
Communicate information fairly and objectively.

Several of the “end of fiscal year actions” clearly are in conflict with these requirements and should be viewed as unacceptable.
(a) Subscriptions cancelled in December should be recorded in December itself and not delayed until January.
(c) Subscription revenue received in December in advance for magazines that will be sent out in January is a liability.  Showing it as revenue falsely reports next year’s revenue as this year’s revenue.
(d) Office supplies purchased in December should be recorded as an expense of the current year and not as an expense of the next year.
(e) Booking advertising revenues that relate to January in December falsely reports next year’s revenue as this year’s revenue.

The other “end of fiscal year actions” occur in many organizations and fall into the “gray” to “acceptable” area.  Much depends on the circumstances surrounding each one, however, such as the following:
(b) If the software on office computers is not updated until January, there is no transaction or expense to record in December.  The responsibility for ensuring that the software is updated is that of the chief information technology officer.  The controller can do little more than observe the absence of a December software update and question whether this will have an adverse long-term impact on Harvest Day.
(f) If building repairs are not done in December, there is no transaction to record in December.  There is no record falsification here.  The decision regarding when to do building repairs is made by the operations manager.
(g) Many companies switch their depreciation policy from one method to another.  Harvest Day could argue that straight-line depreciation better represents the decrease in the economic value of the asset compared to the declining balance method.  Straight-line depreciation may also be more in line with what its competitors do.  If, however, Harvest Day changes to straight-line depreciation with the sole purpose of reducing expenses to meet its earnings goal, such behavior would be unacceptable.  The Standards of Ethical Behavior require management accountants to communicate information fairly and objectively and to carry out duties ethically.

3. Harvest Day’s controller should directly raise his/her concerns with the CEO.  If the CEO refuses to change his request, the Controller should raise these issues with the Audit Committee and the Board of Directors.  The Controller could also initiate a confidential discussion with an IMA Ethics Counselor, other impartial adviser, or his/her own attorney.  In the extreme, the Controller may want to resign if the corporate culture of Harvest Day is to reward executives who take “end of fiscal year actions” that the Controller views as unethical and possibly illegal.  It was precisely actions along the lines of (a), (c), (d), and (e) that caused Betty Vinson, an accountant at WorldCom, to be indicted for falsifying WorldCom’s books and misleading investors.


1-31 (40 min.) Global company, ethical challenges with bribery.

1. It is clear that bribes are illegal according to U.S. laws. It is not clear from the case whether bribes are illegal in Malia. However, knowledgeable people in global business would attest to the fact that it is virtually impossible to find any country in the world that specifically sanctions bribery. The major point, however, that deserves discussion is: Should Zafron engage in any unethical activities even if they are not illegal?
It is difficult to make a generalization about all shareholders of the company. It is, however, safe to assume that not all shareholders would want to keep their investment in a company that is engaged in unethical and/or illegal activities. There is historical evidence to substantiate this point: When apartheid laws were in effect in South Africa, many investors divested shares of companies doing business in South Africa.

2. Apparently Alan thinks that local culture and common practice are one and the same. This, in fact, is not the case. There are many common practices in developing countries, which are against the native culture.
Specifically, bribery often leads to decisions that are not made on the basis of the merits of the alternative selected. This results in misallocation of meager resources of the developing country. Misallocation of resources has adverse effects on the economy of a country and the living standard of its population. The negative impact is intensified in developing countries because they can least afford the misallocation of resources.
As it applies to local common practice, multinational companies make some small allowances but draw a hard line against paying the $1 million “commission.”

3. Zafron might have an articulated corporate policy against such payments to get the message across that regardless of laws, the top management would not tolerate any bribery payments made by its employees. A strong and consistent message from the top often has a noticeable effect on the corporate culture and employee behavior.
U.S. laws specifically prohibit bribery payments. Such payments can result in heavy penalties to the corporation making the payments.

4. If this contract is of great importance to Zafron’s global strategy, it is likely that this kind of issue will come up again as Zafron expands into very diverse cultures and the company should tackle it head on and make a policy decision against offering bribes. Chris Huang should discuss the situation with the top management at Zafron and re-affirm his goal to get the Malia contract by legal means. He could seek the help of the U.S. commercial attaché in Malia to continue a dialogue with Malia’s deputy minister of power generation. He could propose other creative, legal changes to the Zafron’s bid, even at the cost of reducing the profitability of the current project. Concessions such as training programs, schools and other public works projects may be legal, get the attention of the Malia government and raise Zafron’s profile both at home and abroad. In the worst case, if the Malia government does not agree to any of the creative, legal “extras” that Zafron can provide in order to win the contract, Huang should report this to Zafron’s management and be willing to walk away from the Malia project.