Fundamentals of Cost
Accounting 4e Lanen
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,Chapter 01 - Cost Accounting: Information for Decision Making
Chapter 1
Cost Accounting: Information for Decision
Making
Solutions to Review Questions
1-1.
Financial accounting is designed to provide information about the firm to external users.
External users include investors, creditors, government authorities, regulators,
customers, competitors, suppliers, labor unions, and so on. Cost accounting systems
are designed to provide information to internal users (managers).
This difference is important, because it affects the design of the systems. Financial
accounting systems are based on standards or rules. This allows the user to compare
the results of different firms. Managerial accounting systems do not require rules. Each
firm is free to develop managerial accounting systems that best serve the needs of the
decision makers (managers).
1-2.
B Providing cost information for financial reporting
A Identifying the best store in a chain
C Determining which plant to use for production
1-3.
The value chain is the set of activities that transforms raw resources into the goods and
services end users purchase and consume. The supply chain includes the set of firms
and individuals that sells goods and services to the firm. The distribution chain is the set
of firms and individuals that buys and distributes goods and services from the firm.
1-4.
The customers of cost accounting are managers, from plant managers to the CEO.
1-5.
Value-added activities are activities that customers perceive as adding utility to the
goods or services they purchase. Nonvalue-added activities do not add value to the
goods or services. By classifying costs this way, the cost accounting system can help
the manager identify areas (processes) that can be improved, lowering costs and
adding value to the organization.
1-1
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
,Chapter 01 - Cost Accounting: Information for Decision Making
1-6.
Answers will vary, but should include some of the following:
Title Major Responsibilities and Major Duties
Chief financial officer (CFO) ......... • Manages entire finance and accounting function
Treasurer...................................... • Manages liquid assets
• Conducts business with banks and other
financial institutions
• Oversees public issues of stock and debt
Controller...................................... • Plans and designs information and incentive
systems
Internal auditor ............................. • Ensures compliance with laws, regulations, and
company policies and procedures
• Provides consulting and auditing services within
the firm
Cost accountant ........................... • Records, measures, estimates, and analyzes
costs
• Works with financial and operational manager to
provide relevant information for decisions
1-7.
No. Sarbanes-Oxley is a law and violations of it are legal issues. Codes of ethics are
necessary to help accountants and managers identify situations that might develop into
ethical conflicts, understand what they could do in these situations, and to learn what to
do when they believe that an ethical violation has occurred.
1-2
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
, Chapter 01 - Cost Accounting: Information for Decision Making
Solutions to Critical Analysis and Discussion Questions
1-8.
The calculation of cost depends on the decision being made. Therefore, the first
question to ask is, “What decision (or decisions) are you trying to make?”
1-9.
Costs that you could ask to be reimbursed might include the fuel, a share of the
maintenance costs, “wear and tear,” or depreciation, and insurance. To avoid
disagreements, it would be necessary to negotiate an agreement (even if only
informally) between you and your friend considering all factors. For example, you might
agree that she should pay for the gas and any other supplies (e.g., oil) needed on the
trip.
If you are going along, you might change the agreement so that you split these costs.
Alternatively, you might say that because you are going anyway, she can ride along for
nothing.
1-10.
Although it is not the “job” of accounting to determine strategy, accounting provides
important information to those who do determine strategy. If the cost accounting system
provides inaccurate information, the firm may end up with an unintended strategy,
because managers are making decisions based on faulty information.
1-11.
Executive performance evaluation systems are designed for a specific company’s
needs. The systems should be flexible to adapt to the circumstances that exist in that
company. A common set of accounting principles would tend to reduce flexibility and
usefulness of these systems. As long as all parties know the accounting basis used by
the system, the exact rules can be designed in whatever manner the parties deem
appropriate.
1-12.
Airlines are characterized by the need to own a substantial amount of capacity costs.
Managers at airlines require very sophisticated load management information that
predicts the number of passengers flying on a particular route on a particular day. If
they set a single price that would cover their costs given a certain number of
passengers, they risk flying with empty seats. Once the plane takes off, they cannot sell
the seat. Therefore, they need a flexible pricing system. Such a system requires
detailed cost information about passengers and aircraft.
1-3
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
