Solution Manual For
Managerial Accounting Creating Value in a Dynamic
Business Environment 13e Hilton
Chapter 1-17 With Appendix (I II III)
CHAPTER 1
The Crucial Role of Managerial Accounting in a Dynamic Business
Environment
FOCUS ON ETHICS (Located before the Chapter Summary in the text.)
The focus-on-ethics inset for Chapter 1 is the IMA Statement of Ethical Professional
Practice. Instructors can use this list of ethical principles and standards to lead a class
discussion. The discussion can also range to consideration of how these standards may
have been violated by accountants and managers involved in the various ethical scandals
uncovered over the past several years. It is also useful to discuss the pros and cons of the
procedures for ―Resolving Ethical Issues‖ that IMA suggests for its members when they
believe they know about ethical lapses in their organizations.
We also introduce here the connection to the ―Ethics Unwrapped‖ video series that can
supplement the discussion of ethics in the context of each chapter. In each chapter of the
text, we have suggested topic videos in the series that align with that chapter. Discussion
guidance and questions relating to the videos can be found on the ―Ethics Unwrapped‖ site
at the URL provided. This resource is provided by permission from the University of Texas
at Austin, McCombs School of Business.
ANSWERS TO REVIEW QUESTIONS
1-1 The explosion in e-commerce will affect managers in significant ways. One effect will be
a drastic reduction in paperwork. Millions of transactions between businesses are
conducted electronically with no hard-copy documentation. Along with this method of
communicating for business transactions comes the very significant issue of
information security. Businesses need to find ways to protect confidential information
in their own computers, in cloud computing data centers, and while moving across the
internet, while at the same time sharing the information necessary to complete
transactions. Another effect of e-commerce is the dramatically increased speed with
which business transactions can be conducted. In addition, there will be dramatic
changes in the way managerial accounting procedures are carried out, one example
Managerial Accounting, 13/e 5-1
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, being cloud-based budgeting, which is the enterprise-wide and electronic completion of
a company‘s budgeting process using cloud-based software and data storage.
1-2 Plausible goals for the organizations listed are as follows:
(a) Amazon.com: (1) To achieve and maintain profitability, and (2) to grow on-line
sales of their many products. Amazon is also famous (infamous) for wanting to
have every product in the world on its site.
(b) American Red Cross: (1) To raise funds from the general public sufficient to have
resources available to meet any disaster that may occur, and (2) to provide
assistance to people who are victims of a disaster anywhere in the world on
short notice.
(c) General Motors: (1) To earn income sufficient to provide a good return on the
investment of the company's stockholders, and (2) to provide the highest-quality
product possible.
(d) Wal-Mart: (1) To penetrate the retail market in virtually every location in the
United States, and (2) to grow over time in terms of number of retail locations,
total assets, and earnings. Also, to be competitive with Amazon in the e-retail
space.
(e) City of Seattle: (1) To maintain an urban environment as free of pollution as
possible, and (2) to provide public safety, police, and fire protection to the city's
citizens.
(f) Hertz: (1) To be a recognizable household name associated with rental car
services, and (2) to provide reliable and economical transportation services to
the company's customers.
1-3 The four basic management activities are listed and defined as follows:
(a) Decision making: Choosing among the available alternatives.
(b) Planning: Developing a detailed financial and operational description of
anticipated operations.
(c) Directing operations: Running the organization on a day-to-day basis.
(d) Controlling: Ensuring that the organization operates in the intended manner and
achieves its goals.
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,1-4 Examples of the four primary management activities in the context of a national fast-
food chain are as follows:
(a) Decision making: Choosing among several possible locations for a new fast-food
outlet.
(b) Planning: Developing a cost budget for the food and paper products to be used
during the next quarter in a particular fast-food restaurant.
(c) Directing operations: Developing detailed schedules for personnel for the next
month to provide counter service in a particular fast-food restaurant.
(d) Controlling: Comparing the actual cost of paper products used during a
particular month in a restaurant with the anticipated cost of paper products for
that same time period.
1-5 Examples of the objectives of managerial-accounting activity in an airline company
are described below:
(a) Providing information for decision making and planning, and proactively
participating as part of the management team in the decision making and
planning processes: Managerial accountants provide estimates of the cost of
adding a flight on the route from Dallas to Miami and actively participate in
making the decision about adding the flight.
(b) Assisting managers in directing and controlling operations: Managerial
accountants provide information about the actual costs of flying the company‘s
Asian routes during a particular month.
(c) Motivating managers and other employees toward the organization's goals: A
budget is provided for the cost of handling baggage at Chicago O'Hare Airport.
The budget is given to the airline's baggage handling manager, who is expected
to strive to achieve the budget.
(d) Measuring the performance of activities, subunits, managers, and other
employees within the organization: Quarterly income statements are prepared for
each of the airline's major geographical sectors, and these income reports are
used to evaluate the earnings performance of each sector during the relevant
time period.
(e) Assessing the organization's competitive position and working with other
managers to ensure the organization's long-run competitiveness in its industry:
Information about industry-wide performance standards is obtained and
compared with the airline's own performance. For example, how does the airline
stack up against its competitors in ticket prices, on-time departures, mishandled
baggage, customer complaints, and safety?
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, 1-6 Four important differences between managerial accounting and financial accounting
are listed below:
(a) Managerial-accounting information is provided to managers within the
organization, whereas financial-accounting information is provided to interested
parties outside the organization.
(b) Managerial-accounting reports are not required and are unregulated, whereas
financial-accounting reports are required and must conform to generally
accepted accounting principles.
(c) The primary source of data for managerial-accounting information is the
organization's basic accounting system, plus various other sources. These
sources include such data as rates of defective products manufactured, physical
quantities of material and labor used in production, occupancy rates in hotels
and hospitals, and average takeoff delays in airlines. The primary source of data
for financial-accounting information is almost exclusively the organization's
basic accounting system, which accumulates financial information.
(d) Managerial-accounting reports often focus on subunits within the organization,
such as departments, divisions, geographical regions, or product lines. These
reports are based on a combination of historical data, estimates, and projections
of future events. Financial-accounting reports focus on the enterprise in its
entirety. These reports are based almost exclusively on historical transaction
data.
1-7 The cost-accounting system is one part of an organization's overall accounting
system, the purpose of which is to accumulate cost information. Cost information
accumulated by the cost-accounting system is used for both managerial-accounting
and financial-accounting purposes. Managerial accounting is the broad task of
preparing information for making decisions about planning, directing, and
controlling an organization's operations.
1-8 Managers in line positions are directly involved in the provision of services or the
production of goods in an organization. Managers in staff positions support the
organization's overall objectives, but they are indirectly involved in operations.
Examples of line positions in a university are the president, who is the university's
chief executive officer, and the business school dean, who is responsible for running
the ―division‖ called the business school. Examples of staff positions in a university
are the university counsel, who is the university's chief lawyer, and the director of
maintenance, who is charged with maintaining the university's facilities.
1-9 An organization's controller (or comptroller) is the chief managerial and financial
accountant. The controller usually is responsible for supervising the personnel in
the accounting department and for preparing the information and reports used in
both managerial and financial accounting. The treasurer typically is responsible for
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